Compare the best credit cards for bad credit
Capital One® Secured Mastercard®
Who should get it: The Capital One® Secured Mastercard® reports to all three major credit bureaus, and if you make your first five monthly payments on time, you may get a credit limit increase without having to increase the security deposit. That boost could, in turn, reduce your credit utilization, another factor in improving your FICO score.
Why you’ll love it:
The security deposit is fully refundable, and with the minimum required deposit, you’ll have access to a $200 credit limit. The Capital One® Secured Mastercard® also has a $0 annual fee. That means there is no additional cost for using the card, provided you pay in full within the 25-day grace period.
Things to consider:
- At 26.99% (Variable), the purchase APR for this credit card is high.
- You need to have access to an authorized bank account to make the secured deposit.
- There are no rewards associated with the card.
Pro tip: Want to raise your credit limit? The Capital One® Secured Mastercard® allows you to deposit even more money before your account (for a credit limit of up to $1,000)..
If you have a history of late loan payments, a lot of revolving debt, a recent bankruptcy or a short credit history, you may have bad credit. That means you’ll have a harder time qualifying for loans or getting favorable interest rates. Fortunately, there are bad credit credit cards, and using these cards wisely can improve your credit score over time.
How to get a credit card with bad credit?
Before you start filling out applications, it’s a good idea to get your ducks in a row. Here are some quick tips for making sure you’re ready to apply for your first card in turning around your bad credit:
- Save a bit of cash for a security deposit: Secured credit cards offer the highest chances of approval because they require you to place a security deposit, which becomes your credit line.
- Compare credit card fees: The goal is to improve your credit at a low cost. Choose a card with low (or no) annual fees, monthly fees and one-time fees. Pay your bill in full, which will prevent interest charges.
- Choose secured cards with odds for high approval and low fees: Many credit cards for bad credit use your security deposit as a way to prevent the need to charge fees, making secured cards the cheapest way to rebuild credit. If a card you’re interested in does have fees, make sure it’s worth the extra money to meet your financial goals.
- Don’t assume secured means guaranteed approval: Secured cards offer the closest thing you can get to guaranteed approval, but most will still perform a credit check. And certain items on your credit report could disqualify you. If you want a secured card that doesn’t do a credit check, OpenSky® Secured Visa® Credit Card is a good option.
What is considered a bad credit score?
From the first time that you borrow money onward, you establish a credit file at one or more of the top three credit bureaus: TransUnion, Experian or Equifax. Your credit score is a number that reflects the level of risk associated with your buying and payment behaviors. When lenders and other financial groups look at your credit history, they are seeking to determine the probability that you will pay back the money you borrow. Your credit score plays a key role in determining how to get a credit card. Those with high credit scores typically make on-time payments and avoid carrying obscene amounts of debt. The possible FICO score ranges from 300-850, with anything below 579 considered a bad credit score. For comparison, the national average score is 706. It doesn’t take long to severely damage your credit reputation. Though the road back to financial health may be more of a challenge, it’s possible to start rebuilding your credit with a few simple changes.
If you have bad credit, what should you take into consideration when shopping for a credit card?
If you want to improve your credit score, every dollar counts. You should scrutinize the fine print carefully and look for a card that minimizes fees.
You should also make sure that the card you choose reports to at least one of the three main credit bureaus so that using the card wisely will have a positive impact on your credit history.
- APR: Find out if the credit card has a fixed or variable APR and how high it can run. While you should always try to avoid carrying a high balance when building your credit, the APR will determine how much extra you have to pay when you can’t make your payment in full.
- Annual fee: Check to see if the credit card charges an annual fee before applying.
- Security deposit: many credit cards meant to help rebuild bad credit require a security deposit before you can begin utilizing the card. Many companies will match the amount you put down as your line of credit.
- Other fees: some cards require program or start-up fees
- Credit check required: if a credit check is required, you may do more harm than good if your odds of approval are low. Each time a company checks your credit, your score suffers.
What types of credit cards are there for bad credit?
There are two main types of credit cards for bad credit. Secured credit cards require you to make a deposit with the lender issuing the card. Subprime credit cards, sometimes advertised as “student credit cards“, are designed for people just establishing a credit history. Steer clear of cards that require upfront fees — or “fee harvester” cards — because these fees can cut into your credit limit before you even make a purchase.
What type of cards to avoid if you have bad credit
First Premier Bank Gold Mastercard
A 59.9 percent APR and a $75 processing set-up fee. In the second year, there’s a $75 annual fee, which First Premier charges you at the rate of $6.25 a month. And for this, you get a paltry $300 credit limit.
Centennial Gold MasterCard
First Premier Bank issues this card with a 59.9% APR, a $75 processing set-up fee and a $75 annual fee starting in the second year. It also has small credit limits.
Aventium Gold MasterCard
This card has the same 59.9% APR, $75 processing set-up fee and a $75 annual fee starting in the second year, with minimal credit limits.
Applied Bank Gold Visa Card
This unsecured card is expensive, and you get very little in return. The maximum credit limit is just $500. For that, you have to pay a $125 annual fee, which charges to your account. That reduces your credit limit to $375, resulting in incurring finance charges at 30% weeks before your first bill.
There’s also no grace period on purchases, so finance charges are inescapable, even when paying your bills on time. After the first year, the annual fee becomes replaced by a monthly maintenance fee of $15, or $180 annually. Additionally, Applied Bank charges a $100 credit limit increase fee.
Applied Bank Gold Match Plus Visa Card
To get the card, you have to open a deposit account with the bank of at least $300 (maximum $5,000). Your credit limit is the amount of the deposit plus $300. Although your deposit is FDIC insured, the bank doesn’t pay you interest on it. The APR is low at 23.99%.
What is the difference between a secured and an unsecured credit card?
A secured credit card requires a deposit ranging anywhere from $200 to $2,500. The card issuer keeps this deposit as security in case you default on your obligation to pay. An unsecured card does not require a deposit. However, you may need to meet stricter approval qualifications and have to pay higher fees with an unsecured credit card, so it is not necessarily a better deal.
What you need to know about credit scores
FICO, the acronym for the Fair Isaac Corporation, creates the score that 90% of lenders use to determine your creditworthiness. There are five categories within the 300-850 FICO score range: bad (300-579); fair (580-669); good (670-739); very good (740-799); exceptional (800-850). If you want to know your credit score, you can order a copy of the report from each of the three main credit bureaus for free once a year from the only site authorized by the federal government, AnnualCreditReport.com.
Fastest ways to raise your credit score
Everyone’s goal should be to raise their credit score. The higher the score, the lower the interest you’ll have to pay on loans, and the more you’ll be eligible for premium credit cards that offer sign up bonuses and other perks. Here’s how to do it:
- Set up automatic payments so that you’ll pay the minimum on time every month.
- Pay down debt. The lower your percentage of debt utilization is, the higher your credit score.
- Figure out which debt has the highest interest rate and work to pay that off first.
- Don’t close out cards you aren’t using. That will increase your debt utilization ratio and potentially lower your score.
- Don’t apply for new credit. Every hard inquiry lowers your FICO score.
How to increase your credit limit with bad credit
Increasing your credit limit lowers your credit utilization, which can improve your credit score and give you more spending power. The standard approach is to call the credit card issuer and plead your case. They may grant your request if your income or FICO score has increased. If they refuse, another option is to wait and apply for a new card once your credit score is higher.
Is an annual fee worth it when you have bad credit?
Because credit cards for bad credit don’t have flexible terms, you may not have a choice when it comes to paying an annual fee. That is not necessarily a bad thing, though. If the card comes with a cash back option, the points you earn can compensate for the annual fee payment. The best thing to do is compare available credit cards for bad credit and see which one is the least expensive once you account for all the variables.
What to do if your credit card application is denied?
If your card application is denied, says Leslie Tayne, writing for US News, the first thing you should do is figure out why. The lender is required to send you an “adverse action notice” that lets you know which credit bureau supplied the information, and you should check for errors there. The next step is to request a reconsideration, which lets you speak with a person and argue your case. If you are unable to convince them, the next step is to work on rebuilding your credit score so that you can be more successful the next time.
Valerie Fulton is a writer specializing in personal finance, business, entrepreneurship, higher education, and real estate. She is the author of Thrifty Living: Frugal Tips for Living on Less.
Please Note: Information about the Capital One® Secured Mastercard® have been collected independently by TheSimpleDollar.com. The issuer did not provide the details, nor is it responsible for their accuracy.