It’s possible to get a credit card with bad credit, so that’s the good news. The not-so-good news? Some of your options can be costly.
But if you empower yourself with knowledge and pay attention to the fine print, you can choose a card that meets your needs without draining your wallet. As a plus, you can then use your new credit card to help rebuild your credit.
Get Your Credit Score
FICO scores range from 300 to 850. A poor FICO score is between 300 and 579. Most credit card issuers offer free credit scores with your monthly statement. If you don’t have a credit card yet, there are many websites that offer free educational scores. The scores might be VantageScore instead of FICO, but you’ll still gain valuable information about your credit status.
Knowing your score gives you an idea of how far you must go to be in the fair credit score range, which is 580 to 669. But don’t panic if your score is closer to 300 than to 500. You can increase your credit score, and it can start with choosing the right credit card.
Easy Credit Cards to Get With Bad Credit
Secured Credit Cards
There are some good cards in this area offered by major credit card issuers, credit unions and other financial institutions. With a secured card, you have to make a deposit to secure the card. The money then stays in the account to reduce the risk to the issuer.
You get an actual credit card to use for purchases. As long as the issuer reports your payment history to the major credit bureaus, you’ll build credit. If you use the card responsibly, you could eventually get promoted to an unsecured credit card with that issuer. But even if your secured card issuer doesn’t offer an unsecured version, you’ll probably have a high enough credit score to get approved for a credit card with another issuer.
When you do move on to an unsecured credit card and you close your secured card, you’ll get your deposit back unless you have an unpaid balance. Be sure you pay your balance in full by the due date every month so you don’t end up in debt.
Retail Store Credit Cards
I’m not a huge fan of retail store credit cards, but if used responsibly, they can help you build credit. They’re easier credit cards to get because they often have low credit limits and high annual percentage rates.
There’s a variety of credit cards within this category, including cards that are co-branded between a merchant and the card issuer. Some of these co-branded cards can be used not just in one store, but also in other stores where the card issuer is accepted. Co-branded cards can be more difficult to get than retail cards.
Some store-branded credit cards can only be used within that store. Likewise, gas retailers also have store-branded credit cards for spending at only their gas stations.
Advantages of using a store’s retail card may include earning rewards and getting notifications of impending sales. But be sure you don’t carry a balance with these cards. It can be easy to get into debt due to the high interest rates. And remember that store cards usually have low credit limits, which makes it easy to max out a credit card. Having a high balance on your credit card can really put a dent in your credit score.
Subprime Credit Cards
- Subprime: credit scores of 580 to 619.
- Deep subprime: credit scores below 580.
Fair FICO scores range from 580 to 669. While part of that range is considered subprime, there are issuers who target those with fair credit. Once you get above 580, you’ll have access to better credit cards and lower interest rates.
But for now, you need to know that subprime credit cards can have APRs in excess of 30%. And they might also have multiple fees, such as application fees and even monthly maintenance fees. Do read the fine print carefully before you apply for a card in this category. And then read it again!
Become an Authorized User
It’s possible to boost your credit score by becoming an authorized user on someone else’s credit card. If you have a parent, other relative or a close friend with excellent credit, ask if one will help you out.
But if you aren’t committed to rebuilding your credit, don’t risk harming someone else’s credit. When you’re an authorized user, irresponsible credit behavior can lower the score of the primary account holder. The primary cardholder is also legally responsible for the card’s balance. Be sure you make an agreement with your credit benefactor that lays out where you can use the card and what your spending limit will be.
5 Ways to Improve Bad Credit
It does take time and responsible credit behavior to rebuild your credit history. Pay attention to these five credit habits, and you’ll be on your way to a higher credit score.
- Track your spending. If your bad credit score was due to unbridled spending, you’ll be amazed by how effective it is to track your spending. There are many free ways to do this with money management tools online or via free apps. Without structure, you might find it too easy to overspend and get into debt.
- Pay all of your bills on time. With the FICO score, payment history makes up 35% of your credit score. So, set yourself up for success. Use email and text reminders for when bills are due.
- Keep a low utilization ratio. The second biggest factor in your credit score is the amount owed. You have a utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. On your credit card, keep your ratio at least under 30%. But keep it under 10% for a bigger boost.
- Don’t open new credit. Each time you apply for credit, your score could drop up to five points. For the time being, focus on using your new credit card responsibly. After six months or so, when your score improves, then you can consider opening another new card.
- Pay down credit card debt. This is a double win. First, you get to know the freedom of getting out of debt. Second, this process increases your available credit, which makes your utilization ratio go down and your credit score go up.