I recalled when I just immigrated to Canada many years ago. I had no idea about the concept of credit history. There was no such thing in China back then. Credit cards were rarely used. There were only debit cards then.
BMO was very active recruiting newcomer customers. I was talking to this nice lady in their Hong Kong office. She was introducing me to this idea of secured credit card. Of course, she didn’t use this terminology with me. She explained it in a very plain language. Keep three thousand dollars in the chequing account. They will issue me a credit card with a limit of exact three thousand dollars.
I kind of understand that the deposit in the chequing account is a collateral to minimize the risk for the bank in case I can’t pay since I didn’t have any credit history in Canada. All of these were implied.
That is not a bad idea at all. The newcomers got to build their credit history given how important it is while the banks do not need to bear any risks.
Perhaps, this is a product that should be recommended to the consumers who need discipline in their spending. Usually, their credit card might be taken away. Instead, they can use this to enjoy the many reward programs credit cards offer while reducing the default risks. The spending limit is set and there is money in the bank to cover the full limit. It is like a hybrid between a debit card and a credit card.