Are there credit cards for bad credit? The question is important, because a credit card is often an invaluable asset. For example, it can:
- Allow you to reserve and pay for a rental car.
- Help you to finance an emergency medical expense or home repair.
- Provide a safe and secure way to purchase items online.
Using a credit card responsibly also helps you build up a solid credit history, which in turn makes you eligible for better mortgage and auto loan rates.
However, if your credit is poor, getting a card might be a challenge, says John Ulzheimer, a credit expert who has worked at both FICO and the credit reporting agency Equifax.
“If your credit is bad enough, then no credit card issuer is going to give you a card,” he says.
Millions of people potentially find themselves in this boat. The majority of U.S. consumers — 56% — have credit scores that rank as “subprime,” according to a 2015 report from the Corporation for Enterprise Development.
If your credit ranks in the subprime category, it is not just bruised — it is badly injured.
Credit card options for those with bad credit
Lenders might be leery of issuing a standard unsecured credit card to someone with poor credit because they fear the borrower will be unlikely to make payments on time.
Even when such consumers are approved for a card, they probably will pay a much higher interest rate than average, and will have a lower credit limit, Ulzheimer says.
Fortunately, consumers with bad credit still have credit card options. Secured credit cards are among the best ones for bad credit.
With a secured card, you give the lender a security deposit that establishes your credit line. The amount you can charge against this deposit differs from lender to lender.
For example, some lenders only allow you to charge up to 50% of the deposit, while others allow you to charge up to 100% and beyond.
Because there is a relatively low limit on how much you can charge, you should have an easier time staying out of debt trouble when using the card.
How your credit gets restored
As you use a secured card and pay the bill, your lender will report the responsible behavior to the credit reporting agencies. Over time, this should lift your credit score.
Eventually, your credit score can improve to the point where lenders will be much more willing to issue you a standard unsecured card.
SEARCH RATES: Bankrate can help you find a secured credit card today that is just right for you.
Secured credit cards are not the only credit cards for bad credit. Some lenders might offer you an unsecured card despite your shaky credit history.
For example, First Premier Bank offers a credit card “designed for those with less than perfect credit,” according to the bank’s website.
First Premier Bank also notes that it reports your credit card activity to the major credit reporting agencies.
This is crucial, because those reports help boost your score over time. Today, most (but not all) banks report to the 3 major credit bureaus — Experian, Equifax and TransUnion. Make sure to ask any potential lender about its reporting policy before you apply for its card.
Steps to take to repair your credit
Once you finally land a card — secured or unsecured — the power to restore your credit rests in your hands. “It is actually very easy to responsibly manage a credit card,” Ulzheimer says.
Doing so comes down to 2 basic steps, says Ulzheimer:
- Use your card in such a way that you can pay off the balance at the end of the month.
- Make all of your payments on time, every time. Your payment history accounts for 35% of the FICO score, according to myFICO. This score is the most commonly used credit score.
“If you’re willing to do those 2 very simple things, then you’ll never have to worry about expensive credit card debt, and your credit scores will likely improve because of the proper management,” Ulzheimer says.
Other steps to boosting your credit score — and eventually qualifying for an unsecured credit card — include:
- Keeping balances low. The amount you owe on your card determines 30% of your FICO score.
Checking your credit report regularly. Errors sometimes pop up on credit reports and drag down credit scores. Correcting these errors can boost your score. Each year, you are entitled to 1 free credit report from each of the 3 credit-reporting agencies.
FREE CREDIT SCORE: You can also check your credit report and credit score now for free at myBankrate!
- Not closing old accounts. Length of credit history makes up 15% of your FICO score. So, old accounts count for more than newer accounts. If you have an old card that you never use, simply stop using the card without closing the account. Better yet, use the card occasionally, such as once a quarter. Lenders sometimes will close inactive accounts, so it is better to use them at least once in a while.