If you have a bad credit score — often defined as a score less than 580 — you might find it more challenging to get approved for a credit card. Your options will be more limited than those of someone with stellar credit. That said, certain types of credit cards, such as secured cards, are designed to help borrowers with bad credit improve their credit profiles.
Getting approved for a credit card and using it responsibly can help increase your credit score. Read on to learn what types of credit cards are more accessible to borrowers with poor credit, how to get one and alternatives to consider.
[Read: Best Credit Cards.]
Types of Credit Cards You Could Get With Bad Credit
Some types of credit cards come with more lenient requirements, such as those with low or no credit score requirement. These cards are easier to get approved for if you have bad credit or no credit history.
Secured Credit Cards
Unlike traditional credit cards, secured credit cards generally require a deposit that helps establish your credit limit. “For consumers with bad credit, secured credit cards are typically the best starting point because they require a refundable deposit and report to the credit bureaus, helping rebuild credit over time,” says Daniel Milks, a certified financial planner and founder of Fiduciary Organization.
Some secured cards might not even require a credit check, but there’s a drawback to consider. “The biggest downside to no-credit-check cards is the low limit on the cards,” says Benjamin Simerly, certified financial planner, financial advisor and founder of Lakehouse Family Wealth. “The issue isn’t that you can’t spend a lot, but instead that it’s easy to have what’s called a high-credit-usage percentage.” Credit utilization is critical because it accounts for 30% of your credit score.
Subprime Credit Cards
Subprime credit cards are traditional and secured cards that are accessible to borrowers with poor credit. These cards often come with high rates, annual or monthly fees and security deposit requirements. If you’re considering a subprime card, Milks says to watch out for high fees, excessive interest rates or hidden terms.
Retail Credit Cards
Another option is getting a retail credit card, also referred to as a store credit card. Like subprime and secured credit cards, store credit cards often have more lenient credit requirements. However, they may also have high fees and rates.
[Read: Best Credit Cards for Bad Credit.]
How to Apply for a Credit Card With Bad Credit
Follow these steps to get a credit card with bad credit.
1. Review your credit reports. Before you apply for a card, “It’s always a good idea to check your credit reports for possible errors or fraudulent accounts,” says Simerly. If you catch an error that is dragging down your score, you can dispute it with the credit bureau that lists it. You can get free weekly credit reports from all three credit bureaus by visiting AnnualCreditReport.com.
2. Comparison shop. Research and compare different types of credit cards for bad credit. Pay special attention to interest rates, deposit requirements and fees to ensure you get the best deal for your financial situation.
3. Apply. Once you’ve found the best credit card for your needs and wallet, submit a complete application.
Alternatives to Getting a Credit Card When You Have Bad Credit
Opening a card isn’t the only way to build credit. If getting a card isn’t the right option for you, consider these alternatives.
Becoming an Authorized User
Asking a family member with good credit to add you as an authorized user on their card with the longest credit history could improve your score. However, there are downsides to consider. “If the primary account holder misses payments or carries a high balance, it can hurt the authorized user’s credit instead of improving it,” says Milks. “On the flip side, the primary cardholder is liable if the authorized user overspends, so this strategy only works when there’s a high level of trust and clear communication.”
Take Out a Credit-Builder Loan
Another financial product you can use to build credit is a credit-builder loan. Unlike a traditional personal loan, where you receive money after being approved, you make monthly payments to a lender with a credit-builder loan. After repaying the loan, you receive the loan funds, minus interest and fees. As you’re making payments, the lender reports them to the credit bureaus, which can help you add positive credit history to your credit file.
[Read: Best Starter Credit Cards.]
Building Your Credit Score
You can take these steps to increase your credit score.
— Pay all of your bills on time. Making on-time payments is the most important credit-scoring factor. If you’re a new credit card user, Simerly recommends making only one small purchase per month and paying the bill in full. Doing so helps you avoid paying interest and helps ensure you don’t miss a payment.
— Keep your credit utilization rate low. When using a credit card, aim to keep your utilization ratio lower than 30%. For example, if your credit card limit is $1,000, try not to exceed $300.
— Monitor your credit reports for errors. Check your credit reports for errors once a month to ensure they are accurate.
Bottom Line
Getting a credit card with bad credit is possible. However, you’ll need to do some research to find the best deal, as you will have fewer options. If you do get a credit card, it’s crucial to make on-time payments to strengthen your credit file.
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Yes, You Can Get a Credit Card With Bad Credit. Here’s How. originally appeared on usnews.com
