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Credit cards for bad credit: What are your options?
Improve your credit rating to restore your full range of card options.
While a bad credit score can have a negative impact on your chances of getting a credit card in the short-term, it’s possible to find credit cards for poor credit. Use these cards effectively and you’ll be able to select from a greater range of cards as your score improves. If you have poor credit and want to rebuild your score, this guide will help you understand the different options available to you now.
What's in this guide?
Our pick for bad credit
Compare secured credit cards
Secured vs. unsecured cards for bad credit
The main difference between a secured and an unsecured card is that for the first option, you need to make a deposit to act as your credit line. For an unsecured card, you don’t need to deposit anything, but this type of card often comes with a higher annual fee and a higher APR, which in the long run may cost you more.
What causes bad credit?
If you often carry a balance or fail to make the minimum payment before the due date, or if you have debt as high or higher than your annual income, the result will be bad credit.
How do I compare credit cards for bad credit?
Having a bad credit score limits your financial tool options, meaning you can only get subprime credit cards. In this case, getting the right credit card is paramount to building your credit. Here’s what to consider when comparing credit cards:
- Annual fee. If you go with an unsecured credit card, you could pay a high annual fee between $89 and $200. Secured cards also have annual fees, but they are usually lower — between $29 and $49. Some secured cards have no annual fee.
- Credit limit. Unsecured cards often come with a low credit limit between $200 and $300, and they rarely increase the amount. With secured cards, it’s easier because your deposit acts as a credit line. In this case, you can get a credit limit as high as $5,000.
- Interest rates. Keep an eye on this because some unsecured cards come with no grace period. This means, you start to accrue interest from the moment you make the purchase. This can quickly spiral out of control and pull you deeper in debt.
- Rewards program. This is rare with credit cards for bad credit, but some secured cards let you earn rewards on your purchases, such as gas or groceries.
What should I avoid in a credit card for bad credit?
Avoid high interest rates and multiple fees with certain unsecured cards so you don’t get more into debt.
Make sure you read the card’s terms and conditions to avoid surprises. But as a rule of thumb, look for secured credit cards for bad credit as they often have better terms than unsecured credit cards.
How do I raise my credit score?
First, you need a credit-building credit card that reports to all three credit bureaus — Experian, Equifax and TransUnion — has low application requirements and a low annual fee.
Use your card often for purchases, but don’t max out your credit limit. These types of cards usually come with a low credit limit of $300, so make sure you use automated payments to pay for your subscriptions. And most importantly — always pay your full balance before the due date.
What credit cards can I get with bad credit?
While a bad credit score is limiting, it doesn’t stop you from utilizing credit. Here are some options suited to those with poor credit:
- Secured credit cards. Secured credit cards operate just like regular credit cards but require a security deposit to determine the limit of your card. Say you make a $500 security deposit, then you have a $500 card limit. This tells the issuer you have enough money to pay off the card.
This is a great way to rebuild your credit history provided the issuer reports to the three major bureaus — and most secured cards do — and provided you pay off your card on time.
- Prepaid credit cards. Prepaid cards are similar to debit cards in the sense that you’re spending only what you have. Unlike a debit or credit card, you load funds on the card before using it.These cards also don’t affect your credit rating and charge no interest, so they can be a good way to build up your budgeting skills. Most prepaid cards are either Visa or Mastercard, so you should be able to use them in the same places you’d use your credit or debit card.
- Standard “bad credit” credit cards. Bad credit credit cards are a relative rarity in the US. While they do exist, they often have low credit limits, punishing rates and fees or other drawbacks that make them not an optimal choice for everyday use, improving your score or both.These types of cards are sometimes called “subprime” credit cards — a name indicative of the high fees and APRs such cards have. The 2009 CARD Act helped to rein in some of the predatory practices subprime card issuers employed for profit.
Debit cards
A good way to avoid debt is to steer clear of credit and only spend what you have. Debit cards are debt-proof and widely accepted as payment. However, they differ from credit cards in two important ways:
- Debit cards don’t report to credit rating agencies, and therefore don’t help build your credit.
- Debit cards only let you use money from your bank account. Secured cards allow you to “graduate” to either partially unsecured credit cards — cards that allow you to spend a bit more than you’ve deposited — or fully unsecured credit cards that don’t require a deposit.
Bottom line
Ultimately, a bad credit rating can significantly impact your lifestyle, making it difficult to get a car, a home loan or other forms of credit. If you find yourself in such a position, don’t despair. Work on improving your credit rating and managing your finances so that you can live debt-free.
Compare secured credit cards for one that best fits your current financial situation.
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