How To Rebuild Your Credit Using The Right Card
If your credit is less than perfect, you may have trouble qualifying for new credit. Meanwhile, it can be difficult to improve your credit history if you’re not actively trying.
Credit cards for bad credit, help you work on rebuilding your credit history and improving your credit score over time. The best credit cards for bad credit come in two different varieties: secured and unsecured. Secured cards require you to put down a cash deposit that you can borrow against, whereas unsecured cards do not. Both types of cards have certain limitations, but either can put you on the path toward an overall improvement in your credit score.
Table of Contents
- 1 Featured Cards
- 2 Getting A Card With Poor Credit in 2015
- 3 The Simple Dollar’s Top Picks for 2015
- 4 Research More Credit Cards for Bad Credit
- 5 The Best Way To Build Your Credit
- 6 Research Recap
If you can, I highly recommend getting an unsecured card, like the Credit One® Unsecured Visa® Card.
There are three main reasons why I recommend this card for people with subpar credit:
- Since it isn’t a secured credit card, you won’t have to put down a deposit.
- You have the ability to earn rewards for gas purchases — many secured cards don’t offer any rewards at all.
- After making several payments on time, you may be able to secure a credit line increase.
Another excellent option for those trying to build their credit is the Total VISA Credit Card issued by Mid America Bank & Trust Company pursuant to a license from Visa U.S.A. Inc. Mid America Bank & Trust Company; Member FDIC. Although it doesn’t offer a rewards program, it does offer fast or instant approval in certain cases, which is an excellent perk for anyone needing a card that reports to the major bureaus.
Another unsecured card for bad credit that should be at the top of anyone’s list is the Milestone® Gold MasterCard®. Not only does this card offer a quick pre-qualification process that won’t result in a hard inquiry on your credit report, but it also offers custom design options and easy online account access. Adding to the card’s value is the fact that past bankruptcies on your report are usually okay, provided you are using credit responsibly today.
Simple Rules For Getting A Card With Bad Credit
Getting a credit card for bad credit is one of the best ways to begin repairing any credit mistakes you may have made in the past. However, there are a few “rules” that can help guide you towards the best outcome possible. Before you apply, here are some basic tips to consider:
- Know your credit score
- Decide if you want a card or if you really need a short term loan. If its the latter, check out the Best Bad Credit Loan options.
- 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
You first need to understand your credit before you can improving it. 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. To get a copy of your free credit report from the three credit reporting agencies, visit AnnualCreditReport.com.
Once you pour through your credit report and analyze the factors that may be negatively impacting your credit score, you can also consider using a credit monitoring service as your next step. Not only can credit monitoring services help you understand what goes into your credit report, but they can also 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 for 2015
Once you get your ducks in a row, it’s time to figure out which credit card for bad credit might work best with your specific situation. Here are the best credit cards for bad credit we recommend right now:
- Credit One® Unsecured Visa® Card
- Total VISA Credit Card
- Milestone® Gold MasterCard®
- Capital One® Secured MasterCard
- Secured Visa from Merrick Bank
- USAA Secured Card® Platinum MasterCard®
- USAA Secured Card® American Express®
The Best Unsecured Credit Cards for 2015
For anyone with bad credit or little credit history, the Credit One® Unsecured Visa® Card is your best choice. This card doesn’t require a deposit like secured credit cards do, which means you won’t have to pony up a sizeable deposit up front. 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 example, 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. By choosing a card that reports to all three agencies, you are maximizing the chance that your new credit activity will improve your score.
Next, the card offers free monthly credit-score tracking online so you can monitor changes in your credit score. If you are satisfied with receiving only basic information about any changes to your credit score, this may be enough. 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® Unsecured Visa® Card card does carry an annual fee of $35-99 for the first year and $99 each year thereafter, the fee gets charged to your account monthly insead of in one lump sum. If you might have trouble coming up with the annual fee all at once, this might serve as a small consolation.
At 17.9% – 23.9%, the interest rate on this card is very high. However, your new credit strategy should never include interest. To avoid getting hit with high interest charges, only charge what you can afford to pay off immediately and commit to paying your balance in full every month.
Finally, the Credit One® Unsecured Visa® Card lets you prequalify by answering a simple set of questions, so you have a better idea of your chances before you officially apply. Since applying for credit can negatively impact your score, this can help you avoid any unnecessary dings on your report.
Another excellent option when it comes to unsecured cards is the Total VISA Credit Card. This card offers an easy application process and quick approval if you qualify. The fact that it is a genuine VISA card also means you can use your card to rebuild your credit at merchants nationwide as well as online.
Total VISA Credit Card
Among unsecured cards for bad credit, the Milestone® Gold MasterCard® is also a popular option. Benefits offered include quick pre-qualification, online account access, and zero liability for fraudulent purchases, plus the MasterCard brand name which makes this card usable at over 35 million locations worldwide.
Milestone® Gold MasterCard®
The Best Secured Credit Cards for 2015
The main difference between secured and unsecured credit cards is that you have to put down a deposit to get a secured credit card. Since a deposit might be hard to come by, a secured credit card should only be pursued in situations where you simply can’t qualify for an unsecured card.
Capital One® Secured MasterCard
Secured Visa from Merrick Bank
USAA Secured Card® Platinum MasterCard®
USAA Secured Card® American Express®
Research More 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. After that, I considered the importance level of each feature my measuring how much it matters to the average consumer who is researching credit cards for bad credit. 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 each card.
The rating I developed for each card provides an objective basis for comparison 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 in order to qualify for a secured credit card. Since credit card companies take a perceived risk by extending credit to someone with a low credit score, many require this deposit. If you should happen to default on your balance, you should expect your card issuer to keep your deposit.
In most cases, there are better uses for the money you would need to deposit to qualify for a secured card. If you’re carrying high-interest debt from another card, for example, you may want to consider using that money to pay down your debt and getting a prepaid debit card to use instead.
Ease of Qualification
Ease of Qualification carries a high importance rating because credit cards for bad credit can’t help you if you can’t qualify in the first place. And 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. That’s why the ability to qualify easily is so important. To improve your credit in the long run, you need to be able to qualify for the card of your choosing and start using credit responsibly right away.
Prequalification makes the process easier by allowing you to answer a few simple questions that 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 cause a hard inquiry on your credit report. Avoiding a hard inquiry may make it easier for you to 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. If you can manage to pay your bills on time and stay current on your account, you will likely qualify for a credit line increase after your first year.
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. Simply put, the best cards not only help you build your credit, but also provide online tools that can help you monitor your credit score.
Another important factor to consider is the fact that 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 credit reporting agencies. Remember, a new credit card can only help you if your credit activities are actually being reported.
Annual Fee refers to the fee charged each year by the credit card company to maintain your line of credit. Typically, annual fees are charged on rewards credit cards or cards that offer certain other valuable travel perks.
Unfortunately, almost all credit cards for bad credit charge an annual fee. Although paying this fee may not be ideal, you should consider it as the price you pay for the opportunity to rebuild your credit or establish a positive credit history. Once you repair your credit and build your score over time, you can always cancel your current credit card and apply for one that doesn’t charge an annual fee.
The APR refers to the interest rate charged on your balance when you do not fully pay the balance off each month. Unfortunately, most credit cards for bad credit charge higher interest rates than average. To avoid paying these charges, all you need to do is pay your balance in full each month. Doing so will not only help you avoid paying interest, but it will also demonstrate that you have learned to use credit responsibly.
The Best Way To Build Your Credit
There are several steps you can take to rebuild poor credit, but the easiest path involves applying for a credit card for bad credit and slowly proving yourself over time. There are two types of credit cards that can help you achieve this goal:
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. These cards require you to deposit a certain amount of money with the credit card company as collateral. Usually, your credit line is commensurate with the amount you deposit. In other words, your credit line will be equal to your deposit.
At this point, you’re probably wondering why anyone would put down a $500 deposit in exchange for a $500 credit line. The main reason people take this route is because they cannot qualify for an unsecured card and they desperately want the opportunity to prove themselves.
Remember, the end goal with a secured credit card is to make your payments on time and slowly build your credit over time. If you continue to use credit responsibly, you will likely be able to qualify for a credit card with better terms down the line.
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 to people with lower credit is perceived as riskier, there are some very big differences between unsecured cards targeted to this group vs. unsecured cards targeted at people with higher credit.
- Fees: Unsecured credit cards for people with bad credit usually come with higher 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
Although you may find conflicting advice on which type of card is best, you should ultimately choose the card that benefits you the most. In most cases, your “ideal card” will come with low fees and the potential for rewards. That is why I recommend the Credit One® Unsecured Visa® Card.
If you’re still having trouble figuring out which path to take, consider these strategies:
Strategy #1: Try To Get An Unsecured Credit Card
Before you do anything else, you should first determine if you could qualify for an unsecured card. Although they are typically harder to qualify for, they often come with the lowest fees and will save you from having to put down a deposit upfront.
If you’re worried about getting rejected and incurring a hard inquiry on your credit report, try prequalification first. As mentioned above, the Credit One® Unsecured Visa® Card offers a prequalification option. Just answer a few simple questions that will give you an idea of whether or not you can qualify before the actual application goes in.
Strategy #2: Go Secured For A Limited Time
If for some reason you can’t qualify for an unsecured credit card, I suggest getting a secured card. Remember, secured credit cards do not require a lifetime commitment. Even though you have to put down a deposit, you will ultimately get your deposit back if you pay your balance in full and on time. Once you credit score starts improving, you can simply cancel your secured card and apply for an unsecured credit card with better terms.
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. Also make sure that you are utilizing your secured credit card as much as you can. If you want to begin building a credit history, you need to use your card frequently and prove that you can pay your balance in full.
Strategy #3: Use A Prepaid Debit Card As A Short-Term Solution
If you don’t have a bank account, you might have trouble qualifying for a secured credit card. If this is the case, you may want to consider using a prepaid card for a limited time. Unlike secured and unsecured credit cards, prepaid cards are only funded when you make a deposit. Meanwhile, prepaid cards provide the convenience and appearance of credit without many of the risks.
Unfortunately, there are downsides that come with using prepaid cards. For example, since they don’t extend credit, they cannot help you rebuild your credit over time. Also, prepaid cards are known to charge various fees for use. Those fees can include balance inquiry fees, transaction fees, application fees, and monthly maintenance fees.
Rebuilding your credit is a slow process that won’t happen overnight. To get started, you simply need to figure out why your score is low in the first place and take actionable steps to repair any lingering issues. The best credit cards for bad credit can also help you prove your creditworthiness over time. All of these steps will take some initiative on your part, but the end result will definitely be worth it.
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. Just remember, your credit will not repair itself on its own. Credit cards for bad credit can help, but only if you take that first step.