What to look for when evaluating a credit card
When you’re trying to find the right secured or unsecured credit card for bad credit, you’ll want to keep your eye on a few key items:
- Annual fee: This is the fee you pay the issuer to maintain your line of credit. Fees can range from $0 to a few hundred dollars a year depending on the credit card. In general, though, especially when you’re just starting out rebuilding or establishing credit, you may have a higher fee. Try to choose a card with a low annual fee, if possible.
- APR: Annual Percentage Rate (APR) refers to the interest rate charged on your credit card balance when that balance is not paid in full. Again, interest rates will range depending on the card, but typically secured and unsecured credit cards for bad credit have higher rates. Avoid paying interest by paying your balance off in full each month.
- Credit limit: The initial credit limit refers to the amount of credit you’ll be extended upon opening an account. If you have bad credit, you’ll probably have a lower line of credit ($500 or less). However, being responsible with your card may allow you to extend your credit limit (for free on an unsecured card or for an additional deposit with a secured card).
- Security deposit: Unsecured cards won’t require a security deposit, but secured cards will require one. Depending on your qualifications, you may be able to put down a couple of hundred dollars to a couple of thousand. This is money you’ll need to pay upfront, though, so make sure you’re ready for that cost. In some cases, like with the Discover it® Secured Card - No Annual Fee, you may qualify to have your security deposit refunded after a period of responsible use.
Keep an eye on these four items to find the best card for you. Ideally, you’ll want an unsecured card with a small or $0 annual fee, low APR, and a reasonable credit limit.
How to choose the right credit card for you
Everyone has a different credit card that’s right for them, so you’ll need to consider what benefits your ideal card would have. Are you looking for low upfront costs? Want a rewards program? Need a low APR? If you’re still not sure, consider these strategies:
Strategy #1: Try to get an unsecured credit card. Unsecured credit cards are more desirable because they don’t require a security deposit and often have lower fees. However, they also have more strict requirements for approval. Fortunately, a number of unsecured cards offer free pre-qualification options that give you an idea if you will qualify without having a hard inquiry on your credit report.
Strategy #2: Go secured for a limited time. If an unsecured credit card isn’t an option at the moment, consider a secured credit card instead. You will need to put a security deposit down; however, in some cases, you may qualify to have your deposit refunded after a period of responsible use. Keep an eye on your credit score during this time so you know when you might be ready to “upgrade” to an unsecured credit card.
Strategy #3: Use a prepaid debit card as a short-term solution. In some cases, you’ll need to have a bank account to open a secured credit card. If you don’t have one yet, consider using a prepaid debit card until you can open an account. Unfortunately, a prepaid debit card doesn’t report to the credit bureaus since they’re not extending credit; however, it’s a good short-term solution while you figure out the best credit card for you and open a bank account.
Six steps to rebuilding or establishing your credit score
Not sure where to get started when it comes to rebuilding or establishing your credit score? These six steps will get you started:
Step 1: Get a credit report
Your credit report will give you insight into how you can improve your credit score. Request a copy of your credit report from all three of the bureaus through AnnualCreditReport.com (you can request a copy of one or all three every 12 months for free). Look through everything on the report to find any patterns that may be hampering your efforts (such as making payments late or missing payments).
Step 2: Dispute any inaccuracies
While you’re looking through your credit report, you’ll also want to make sure everything is accurate and up to date. Having an inaccuracy on your credit report could be unnecessarily bringing your credit score down. If you find an error, you should dispute it by contacting both the credit reporting agency as well as the company that provided the inaccurate information. You can do so either online, by mail, or by phone.
Step 3: Pay off outstanding debt
If you currently have any outstanding credit card debt, you’ll want to pay that off before opening a new line of credit. Your credit utilization rate – the amount you have charged in relation to your credit limit – accounts for 30% of your credit score. This means you’ll want to keep balances low and/or paid off in full each month. After you pay off a card, though, don’t close it out. Having a long credit history is also important to improving your credit score.
Step 4: Get a credit card
Now that you have a better understanding of your credit score and credit report history, it’s time to start establishing or rebuilding your credit. Apply for one of the secured or unsecured credit cards for bad credit on our list. Just be sure to limit the amount of applications you fill out. Too many hard inquiries can hurt your score. Not sure if you’ll get approved? Many of the cards on our list will let you know if you pre-qualify without hurting your credit score.
Step 5: Set up a reminder system
Now that you’re rebuilding or establishing credit, it’s time to get on top of things. Making on-time payments accounts for 35% of your credit score, so it’s of vital importance not to miss a payment or pay late. Sign up for reminder alerts, set calendar notifications, use a financial tracking software, or download an app that notifies you. You can choose to either make one payment a month or break it up into smaller pieces, such as twice a month or once a week. Just make sure you’re paying the full balance on time each payment cycle.
Step 6: Wash, rinse, repeat
Once you have the basics down, it’s time to keep repeating them. The only way to build credit is to use credit regularly and responsibly. Charge a small amount each month, pay it off in full, and repeat. Check your credit score every few months to see if it’s increasing. Request a copy of your credit report once a year to review it.
Good credit doesn’t just happen, but if you’re responsible, persistent, and patient with your credit, you can rebuild or establish good credit in time.
Research More Credit Cards to Rebuild Your 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.
Sort, filter, or search for what matters most to find the best credit card for you.
Rewards Tier Level
No Annual Fee