If you have bad credit in Canada, it may be hard to rebuild your credit score. Depending on your credit score, you may get rejected for auto loans, personal loans, credit cards, and most other lines of credit.
So, how are you supposed to rebuild your credit if you can’t qualify for a traditional credit card, or even a car loan? It’s a reasonable question. In some cases, Canadians may take out payday loans, simply because they think the loan may help them rebuild their credit score.
But are payday loans actually a viable way to rebuild your credit score? Find out in this article from Ride Time.
Don’t Get A Payday Loan – They Don’t Affect Your Credit Score (Positively)
Payday loans are not reported as a “hard inquiry” on your credit report, as most payday lenders do not check your credit before issuing a loan. This means that you can get a payday loan without it affecting your credit at all – as long as you pay it off.
But that’s where things get interesting. While payday loans do not have any positive effect on your credit score, they can have a negative effect.
If you fail to repay your loan – which is common due to the ridiculous interest rates of payday loans – this will be reported to all major Canadian credit agencies, and your credit score will drop.
Payday Loans Have APRs Exceeding 400%
That’s not a typo. Most payday lenders charge about $15-$30 to borrow $100 for a 2-week period, which is the equivalent of an annual APR of 390%-780%.
Compare this to a credit card, which has an APR of 25% (which is still considered high), and you’ll start to see why borrowing from a payday lender is such a bad idea.
Out Of Options? Consider A Secured Credit Card!
If you can’t get any other traditional loans, and are denied for all of your credit card applications due to bad credit, you do have a few more options.
Secured credit cards are the best way to rebuild your credit if you can’t qualify for other loans – and you won’t pay any interest at all if you pay your balance in full every month.
Secured credit cards are simple. After you apply, you make a deposit with the card issuer, equal to the total credit line you are issued. You can deposit $500, and get a $500 line of credit. Then, you simply use the card normally.If you are ever late on your payments, or you default on your card, the bank takes your deposit and closes your card.
Because they already have their deposit, this makes issuing a card extremely low-risk – so even if your credit score is very bad, you are likely to be approved for a secured credit card.
This makes secured credit cards the best option if you need to rebuild your credit score, and you do not have any credit card debt.
Got Bad Credit In Canada? Need A Car? We’re Here To Help!
We work with over 15+ lenders in Canada who specialize in issuing loans to Canadians with poor credit. Whether you have great credit, bad credit, or no credit, we can get you a great deal on a high-quality used vehicle.
So start shopping now. We deliver our cars all across the country – so whether you’re in Winnipeg or elsewhere in Canada, you can get the transportation that you need!