How to get a credit card with bad credit
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If you have a “bad” credit rating, you might be surprised to learn that getting a new credit card might actually help you. If you are able to get a new card approved despite bad credit, you will have the potential to develop better credit habits and better creditworthiness through responsible use. Not only that, but adding a new card can improve your credit usage rate and your credit score if you are already in debt.
Unfortunately, credit card options for people with bad credit are somewhat scarce and cards in this niche tend to have little benefit. Bad credit credit cards can also come with high fees and interest rates, which can make maintaining a balance costly.
But with all of that said, it’s important to understand that some bad credit credit cards are considerably better than others. So let’s take a look at what type of credit cards you might qualify for with bad credit, as well as how you can use them to your advantage.
If you have bad credit, you probably already know it. After all, a bad credit rating usually means that you have been denied a credit card or other loans in the past. You probably also know the reason you have bad credit to start with, whether it’s because you let a loan or credit card default, an account went into collection, or went bankrupt. .
But even if it does, it never hurts to check your credit score so you know exactly where you stand. Fortunately, there are several ways to check your credit score for free.
Related: How can you check your credit score?
You probably already know the reasons for your bad credit, but knowing the exact number is the first step to improving it.
You can start by signing up for a credit monitoring service that provides a free credit score, or a program that offers free credit monitoring tools. For example, Capital One’s CreditWise gives consumers a free preview of their TransUnion VantageScore 3.0, and you don’t have to be a customer to use it.
When working on your credit score, you will probably want to pay the utmost attention to your FICO credit score, as it is the most commonly used scoring model. FICO credit scores range from 300 to 850 and are broken down into the following levels:
- Exceptional: 800 and more
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Bad: 579 and less
While really “bad” credit is a FICO score of 580 or less, “good” credit between 580 and 669 is still below average compared to other American consumers. If your credit score falls into any of these categories, you need to take steps to improve it as quickly as possible.
If your credit is low, you can benefit from two types of credit cards: secured credit cards and unsecured credit cards.
Secured credit cards are usually the easiest to get if you have bad credit. However, secure credit cards require a cash deposit to start. This means that you may need to deposit $ 200, $ 500 or more as collateral, and you will usually get a low credit limit equal to or close to your deposit.
The biggest advantage of secured credit cards is that they are usually reported to major credit bureaus. This means that all of your on-time payments are added to your credit report, which can help increase your credit over time. And while you need to deposit a cash deposit to open a secure card, if you later close the account or upgrade in good standing and with a balance of $ 0, your deposit will be refunded.
In addition to secured credit cards, you can also benefit from an unsecured credit card with bad credit. These cards usually come with a fee, low credit limits, and few perks, but they can still help you build credit.
If you have bad credit, make sure you get a new credit card for the right reasons.
Before you get a new credit card, you need to make sure you understand what you hope to accomplish. Although obtaining a credit card gives you the opportunity to improve your credit, you could worsen your credit if you are not prepared to take on this responsibility. So before applying, ask yourself these questions:
- Do I intend to carry a balance? If you want a credit card so you can keep a balance, be aware that bad credit credit cards come with high interest rates. Not only that, but secured credit cards require you to put money down as collateral, so they’re not a good option if you need a loan.
- Am I interested in the rewards? Some credit cards for people with bad credit offer the possibility of earning rewards on your spending. While the rewards can be lucrative, keep in mind that they often get people to spend more than they intended.
- Do I want to pay an annual membership fee? Not all credit cards for people with bad credit charge an annual fee, but some do. If you decide to pay an annual fee, you need to make sure that all the benefits you get are worth it.
- Am I ready to take my credit seriously? A new credit card gives you the opportunity to improve your credit, but it won’t happen automatically. In most cases, getting a new credit card will only improve your situation if you keep your balance low and always pay your bill on time.
The best credit cards for bad credit might not look very appealing, but the point is to use them to boost your credit score so you can qualify for better deals later. But there are a few ‘pitfalls’ to be aware of and watch out for, including:
- Fresh: While you should try to avoid annual fees if you can, you should also be aware that some credit cards, especially those intended for people with bad credit, try to charge an account opening fee or program fees. Avoid these offers as much as possible.
- High APR: Beware of high interest rates which can make carrying debt incredibly expensive. In fact, if you plan to use a credit card to improve your credit, you should try to avoid carrying a balance entirely on the new card.
- Credit errors: Finally, beware of mistakes that hurt your credit in the first place. The worst thing you can do is pay your credit card bill late as it will have a major negative effect on your credit score so avoid it at all costs.
If you use a new credit card wisely, you can improve your bad credit.
If your goal is to get a new credit card to help rebuild your credit, you need to know and understand how your credit score is determined in the first place. Let’s take a closer look at the five factors that make up your FICO credit score. :
- Payment history: 35%
- Amounts due: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
By looking at these factors, it’s easy to see what your next steps should be. Most importantly, you should strive to pay your credit card bill – and all of your other bills – on time every month. Also, you need to keep your debt to a minimum, as the amount you owe against your credit limits is 30% of your FICO score, also known as your “credit utilization rate”.
Since any credit card you get with bad credit will likely have a low credit limit to begin with, you’ll need to be especially careful not to go over your credit limit and to pay off your balance as much as possible each month to keep your credit going. low credit utilization rate.
The length of your credit history can also be increased if you keep old credit accounts open and in good standing, and you can maintain your high score in the “new credit” category by not opening too many new accounts.
Your credit mix is a final category to keep in mind, but you might not have too many different types of credit, such as installment loans like a mortgage or a car loan, when your rating is low. credit is average or bad. Once you’ve improved your credit score, you may be more concerned with diversifying your credit with installment loans, revolving accounts, and other types of credit.
Ultimately, if you want to get a new credit card in an effort to improve your bad credit, you need to make sure you don’t make the same mistakes that got you into trouble in the first place. So if you do decide to apply for a new credit card, be smart about how you use it. Don’t overspend, pay your bills late, and avoid cards that charge high fees so you can get back on the road to good credit.
Check out CNN Underscored’s list of best credit cards of 2021.
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