If your credit is less than perfect, you’ll have a more difficult time obtaining and using a credit card. The flip side is that responsible use of a credit card is a fantastic way to rebuild your credit score.
Even with bad credit, you have some great options to start rebuilding your financial future. The best credit cards for bad credit come in two different varieties: secured and unsecured (low credit cards).
If you can, I highly recommend getting an unsecured card, like the Credit One Bank® Gas Rewards Credit Card.
There are three main reasons why I recommend this card for people with subpar credit:
- It’s not a secured credit card so you don’t have to lay down a deposit to use the card.
- You have the ability to earn rewards for gas purchases — many secured cards don’t offer any rewards at all.
- You can get a credit line increase for making your payments on time.
Simple Rules For Getting A Card With Poor Credit
Later in this article, I get into more details on the difference between secured and unsecured cards. For now, I want to start with a few simple rules for getting a credit card if you have poor credit. If you follow these tips, you’ll save yourself time and headache, while getting on the right path to rebuilding your credit.
- Know your credit score
- Sign up for a credit monitoring service
- Don’t apply for the best rewards cards, travel cards, or cash back cards
- Consider using a prepaid debit card if you find yourself falling behind
Understanding your credit is a vital step toward improving your credit. How else would you know what improvements to make? Federal law allows you to get a free copy of your credit report every 12 months from each credit reporting agency, which enables you to ensure the information on all of your credit reports is correct and up to date.
Credit monitoring services below can help you understand what goes into your credit report and protect you from future negative impacts from fraud or identity theft.
|Identity Guard||30-day free trial||$14.99/month|
|LifeLock||30-day free trial||$19.99/month|
|Identity Force||No free trial||$23.95/month|
|Experian||7-day free trial||$19.95/month|
|TransUnion||7-day free trial||$16.95/month|
The Simple Dollar’s Top Picks
Here are the best credit cards for bad credit:
- Credit One Bank® Gas Rewards Credit Card
- First Progress Platinum Elite MasterCard® Secured Credit Card
- Secured Visa from Merrick Bank
The Best Unsecured Credit Card
For anyone with bad credit or little credit history, the Credit One Bank® Gas Rewards Credit Card is your best choice. This card doesn’t require a deposit like secured credit cards do, which means you keep more of your available cash on hand. This card is also one of the few cards targeted at lower-credit customers that earns rewards, with 1% back on all gas purchases.
You will start out with a fairly low credit line, usually lower than $500, but Credit One builds in a clear path to raise your limit over time. For instance, you receive an automatic increase if you make your first six payments on time.
Building Your Credit With Credit One
On the credit rebuilding side, there are several major advantages to this card. First, it reports to the three major credit bureaus: Equifax, Experian, and TransUnion. This is important because most financial institutions use a combination of scores from these companies to find out if you’re credit worthy or not.
Next, the card offers free monthly credit-score tracking online so you can monitor changes in your credit score. To get more advanced information on what’s actually in your credit report, you will need to sign up for a credit monitoring service, like the ones I mentioned above.
Earn Rewards In Exchange For Paying A Fee
With most unsecured credit cards, you will have to deal with annual fees and, generally, high-interest rates. While the Credit One Bank® Gas Rewards Credit Card card does carry a $75 annual fee for the first year and $99 each year thereafter, the fee gets charged to your account monthly, which is a small consolation.
At 23.9%, the interest rate on this card is very high, but your plan should be to pay your balance off each month, otherwise you should just get a debit card.
Finally, when you have less-than-perfect credit, the last thing you want is to get turned down for a credit card and add another blemish to your credit report. The Credit One Bank Gas Rewards card lets you prequalify by answering a simple set of questions, so you have a better idea of your chances before you officially apply.
The Best Secured Credit Cards
The main difference between secured and unsecured credit cards is that you have to put down a deposit to get a secured credit card, which many people don’t like. Secured credit cards should only be pursued in situations where you simply can’t qualify for an unsecured card.
First Progress Platinum Select MasterCard Secured Card
Secured Visa from Merrick Bank
Research the 28 Best Credit Cards for Bad Credit
Below is a directory with the most popular credit cards for bad credit in the marketplace. These include the best secured credit cards and unsecured credit cards for lower credit. Sometimes, credit card issuers bring new cards to the market and sometimes they choose to discontinue certain cards. All changes are reflected in real-time in this directory.
Directory of Credit Cards for Bad Credit
To develop an overall rating for each credit card shown, I analyzed the features of each card. Then, I considered the importance level of each feature my measuring how much it matters to someone looking to build or establish credit. Many important features of the best credit cards for bad credit do not apply to other cards, making these cards a completely different breed. The most heavily weighted features of a credit card for bad credit are Deposit Requirement, Ease of Qualification, and Initial Credit Limit. I also considered the Credit Reporting, Annual Fee, and APR associated with the cards.
Perhaps the one more subjective inclusion in my ratings is the issuer of the credit card. It’s believed that a payment history with one issuer will earn you some trust and the ability to receive better credit card offers from the issuer in the future.
I developed a rating for each card which provides an objective basis to compare cards based on the features we decided are most valuable to the majority of customers with below-average credit.
Sort, filter, or search for what matters most to find the best credit card for you.
To help explain what I looked at when rating these cards, a more detailed outline is included below.
Deposit Requirement is the amount of money the cardholder must deposit as security to be extended a line of credit from the credit card company. Since a credit card company is taking a perceived risk by extending credit to someone with a low credit score, many companies require this deposit, but some do not. If you do not make your payments, the credit card company will keep the money on deposit.
Cards that do not require a deposit are called “unsecured” and those that do require a deposit are “secured.” It is generally better to get an unsecured card if you can, but these cards often require a higher credit score. When you absolutely can’t obtain an unsecured card, go with a secured card with a deposit you can handle.
Remember there are always other uses for the money in your deposit. If you’re carrying high-interest debt from another card, you may want to consider using that money to pay down some of the debt and just getting a prepaid debit card to use in the short term.
Ease of Qualification
Ease of Qualification carries a high importance rating because a credit card does no good if you can’t qualify. This feature is especially important for people with bad credit. While almost anyone can qualify for a secured credit card if their deposit is large enough, not everyone has enough money to put down a deposit, so other means of qualifying come into play, such as the ability to prequalify.
Prequalification eases the process because answering a few simple questions will give you a pretty good idea of whether or not you will be accepted. An added advantage of prequalification is that it doesn’t hit your credit report. So, you could prequalify for an unsecured credit card and sign up for a secured card if you get rejected.
Initial Credit Limit
Initial Credit Limit is the amount you can borrow immediately upon opening an account. This amount is usually low. Most often, the limit is below $500. In contrast, initial credit limits for those with excellent credit can be thousands of dollars. Initial Credit Limit is important because the more you can start with the better. For example, if you have to deposit $300 for a $300 Initial Credit Limit, it might not make sense to open that card.
The good news is that many of the best credit cards for bad credit provide a clear path to increasing your credit line. Make sure you always pay on time and you’ll soon see your credit limit increase.
Credit Reporting encompasses both the tools available for you to monitor your credit score and the way the card interacts with the credit reporting agencies.
Many of the best credit cards for bad credit provide your credit score on your monthly statement. While not a complete rundown of your credit history, it is nice to see the changes in your score from month to month as you build your credit profile back up. The best cards provide online tools to monitor your credit score.
Not all credit cards report your financial history to all three major credit bureaus: Experian, Equifax, and TransUnion. If you have bad credit, look for a card that reports to all three because most financial institutions use information from the big three within their own approval systems if you apply for a mortgage or car loan in the future.
Annual Fee refers to the fee charged each year by the credit card company to maintain your line of credit. Many credit cards charge annual fees and others do not. Typically, annual fees are charged on rewards credit cards or cards that offer certain other valuable travel perks.
Unfortunately, for those with poor credit, almost all cards you can qualify for will carry an annual fee. Even though the annual fee is hard to avoid, there are substantial differences in the dollar amounts charged and how the charge is allocated. For instance, sometimes this fee is spread out as a prorated, lower charge each month. Other times, it’s charged in one lump sum at the beginning of the year. Depending on how tight your budget is, you may want to opt for a card that spreads out the annual fee over the entire year instead of all upfront.
The APR refers to the interest rate charged on your balance when you do not fully pay the balance off each month. APRs on credit cards for people with bad credit are very high and can easily go over 23% per year. The APR is of lower importance because the assumption is you’ll pay off your balance each month to avoid paying thousands of dollars in interest each year. If you have bad credit, the single best thing you can do is make on-time payments in full each month to demonstrate responsible handling of credit and avoid racking up unsustainable debt.
The Best Way To Build Your Credit
When you have damaged credit, there are no quick fixes. The only way back is to demonstrate you can responsibly handle credit. One way to do this is with a credit card, but how do you access a credit card with bad credit or no credit history? There are two distinct types of credit cards targeted at individuals with bad credit.
Choosing which type of credit card will largely depend on how bad your credit score is and how badly you need a credit line.
Keep in mind that your main goal here is to build your credit back up or establish a positive credit history. Choosing a card that helps you accomplish that goal is the number one priority.
Secured Credit Cards
Most credit cards for people with bad credit are secured credit cards. This means you deposit a certain amount of money with the credit card company and they extend you a line of credit. Usually, the amount you deposit is the amount of credit you get, so depositing $500 will get you a $500 credit line.
At first glance, you may wonder why anyone would put down $500 in cash for the exact same amount in credit. The main reason is that this is sometimes the only option for getting a credit card. Almost anyone can be approved for a secured card because of the deposit, so no matter how bad your credit is, you can start with a secured card.
The end goal with a secured credit card is to make your payments on time and slowly build your credit up. If you continue to have good practices with your secured card, it will open up the opportunity to own an unsecured or rewards credit card in the future.
Unsecured Credit Cards
Most credit cards you’re familiar with are unsecured, meaning the line of credit extended to you is not secured by any deposit or other collateral. The credit card issuer is simply trusting your history of responsible repayment and your means to repay.
Because lending money unsecured to people with lower credit is perceived as more risky by the credit card issuer, there are some very big differences between unsecured cards targeted to this group vs. unsecured cards targeted at people with higher credit.
- Fees: You tend to see annual fees and sometimes account setup fees and additional cardholder fees.
- Lower credit limit: If approved, your limit will be much lower, usually less than $500, while people with good credit might get approved for several thousands of dollars depending on their income.
- Interest rate: Again, because of perceived risk, interest rates on these cards are substantially higher.
Making The Right Choice
There is a lot of advice out there on which type — secured or unsecured — is better. While every person’s situation is different, my opinion is that an unsecured card with low fees is more preferable. That is why I recommend the Credit One Bank® Gas Rewards Credit Card.
To me, it just doesn’t make sense to tie up cash in a deposit. If you can’t get an unsecured card, there are a few other options to get a credit card. Here are a few strategies to figure out which card is best.
Strategy #1: Try To Get An Unsecured Credit Card
Your first choice should be to check if you qualify for an unsecured card. Unsecured cards usually have more stringent requirements for approval than secured cards do. For example, the credit score and income thresholds may be higher for an unsecured card.
The upside is you have more financial freedom by avoiding that initial deposit. Remember, all popular credit cards like rewards cards and cash back cards are unsecured, so rebuilding your credit on an unsecured card will only help you make the transition to a more rewarding card in the future.
If you’re worried about getting rejected and having that decline show up on your credit report, try prequalification first. As mentioned, the Credit One Bank® Gas Rewards Credit Card offers a prequalification option. Just answer a few simple questions and get an answer before the actual application goes in. This way, you avoid the decline showing up on your credit report.
If you do end up applying and get declined for some reason, don’t fret. One decline in the grand scheme of things won’t make much of a difference when your credit score is already low — you just want to avoid a string of many declined applications. If you get declined, move on to your next strategy and sign up for a secured card.
Strategy #2: Go Secured For A Limited Time
When you can’t qualify for an unsecured credit card on your own, I suggest getting a secured card. Only get this card for the length of time it takes to get your credit in line for you to get an unsecured card.
There are many different schools of thought on secured vs. unsecured cards. Many people say if you have poor credit, you should get a secured card because they carry lower fees. I don’t see this as true if you find the right card and use the card properly.
The most important reason I suggest the opposite — getting an unsecured card first — is that “cash is king.” I’m sure you have a million better uses for a few hundred bucks than having it sit with a credit card company. For example, when rebuilding your finances, building an emergency fund is vital. Any money you can scrape together for a rainy day is better than none.
If you choose a secured credit card, make sure you get an updated credit score each month with your statement. For example, the One United Bank Unity Visa Secured Card provides your FICO score each month to help you see your progress. This will help you know when you are ready to apply for a better card that doesn’t require a deposit.
Strategy #3: Use A Prepaid Debit Card As A Short-Term Solution
The one issue that could hold you up from getting a secured card is having a bank account. Most secured cards require you to have one. If all else fails and you don’t want a bank account, you can always take a look into a prepaid card to manage your money.
With a prepaid debit card, you load money on the card and it operates just like a debit card with a bank account. You can only spend the amount you have loaded. There is no credit extended, so your usage is not reported to any of the credit bureaus. Although you won’t begin to rebuild your credit history with a prepaid debit card, you can begin to rebuild your finances, get on your feet with a bank account, then work up to a credit card. You’ll also learn the basics of money management and be able to track your spending.
Prepaid cards have become more popular in recent years because they can be used more like a traditional bank account. You can transfer money to individuals online and even get additional cards and set spending limits for your kids.
Rebuilding your credit involves a few simple steps and it will take a lot of time. Stay patient. The only way to establish credit is with a credit product like a credit card. In order to qualify, you have to meet some requirements. Fortunately, there are many credit cards that give people with less-than-stellar credit the ability to qualify for a card.
The keys to getting the best credit card when you have bad credit are:
- Always make sure you know your credit score.
- Get a bank account. Use a prepaid debit card until you can open one.
- See if you can qualify for an unsecured card on your own.
- If you can’t, then plop down the deposit needed for a secured card.
- Keep making your payments on time!
If you understand and implement these steps, you’ll be heading in the right direction to rebuilding your credit score and improving your financial future.