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As a Bankrate credit cards editor, Ashley Parks is fascinated by the ways people can make credit cards work for them when armed with the right knowledge.
Brendan Dyer holds a Master of Fine Arts in Journalism from Western Connecticut State University and worked previously as a content editor for Regional News Network, a hyper-local TV news station contracted by Verizon FiOS1 News. As a national service volunteer, Brendan exercised a passion for helping underserved communities and demographics through direct, community service. He constantly seeks to apply his expertise as a journalist to the field of personal finance with the goal of helping people navigate the complexities of the credit card industry.
Courtney Mihocik is an editor at Bankrate Credit Cards and CreditCards.com specializing in credit card news and personal finance advice. Previously, she led insurance content at Reviews.com and worked as the loans editor at The Simple Dollar.
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A credit score of 500 or less gives you plenty of room for growth when building your credit, and it won’t exclude you from qualifying for a good credit card. Plenty of credit cards for a 500 credit score or lower offer credit-building tools to help you achieve a higher score; others even offer rewards. The cards featured here could get you on the right track for a better score and better cards.
The Capital One Platinum Secured is one of the best credit-building cards on the market. While it doesn’t offer rewards, your refundable security deposit could be as low as $49 ($99 or $200 minimum deposit possible, depending on your credit score) while still giving you access to a minimum credit limit of $200. This card’s low deposit requirement is among the most affordable on the market, giving more people access to credit.
Pros
There’s potential for a low security deposit if you qualify.
You could be eligible to upgrade in just six months.
Cons
The high APR on any balance you carry could get expensive quickly.
This card has no rewards program.
Best unsecured option
Petal 1 “No Annual Fee” Visa
Rating: 4.4 stars out of 5
4.4
If you don’t want to pay a security deposit, the Petal® 1 “No Annual Fee” Visa® Credit Card is an unsecured option that you can get with little to no credit history. Your ongoing APR with this card can be lower than rates you’ll typically find on credit cards for limited or bad credit. The rate you get will largely depend on your creditworthiness, but you’ll want to avoid carrying a balance regardless of your APR to build credit quicker.
Pros
This card is unsecured, so you won’t pay a security deposit.
Depending on your credit score, you could get a credit limit between $300 to $5,000, which is much higher than other credit-building cards.
Cons
If you have a low credit score, there’s potential for a high APR.
No consistent rewards program outside of Petal Perks.
Best for earning cash back
Discover it Secured
The Discover it® Secured Credit Card offers people with little or no credit history the chance to earn rewards and a stellar intro offer. Like most other secured cards, it doesn’t charge an annual fee and reports to all three major credit bureaus. You may also qualify for a credit line increase after seven months of responsible card u
Pros
This card has a rewards program, a rare feature for a secured card.
You could get a credit limit increase after seven months of responsible card use.
Cons
Merchants may not accept a Discover card as often as other card networks like Visa and Mastercard.
The required minimum security deposit is high.
Best for flat-rate cash back
Petal 2 “Cash Back, No Fees” Visa
Rating: 5 stars out of 5
5
The Petal® 2 “Cash Back, No Fees” Visa® Credit Card is similar to the Petal 1 card but offers a few extra perks. The Petal 2 has a straightforward rewards program and its best rewards rate comes as an incentive for making consistent payments towards your credit card balance. With this card, you’ll earn 1 percent back on eligible purchases right away, with the opportunity to earn up to 1.5 percent cash back on eligible purchases after making 12 on-time monthly payments.
Pros
This card incentivizes paying on time, a welcome feature for a credit-building card.
The card charges no fees and no security deposit.
Cons
Other credit-building cards available have more competitive rewards programs and welcome offers.
You could have a sky-high APR and the card doesn’t have intro APR offers to give some relief on interest.
Best for rebuilding credit
Mission Lane Visa
Rating: 3.4 stars out of 5
3.4
The unsecured Mission Lane Visa® Credit Card charges an annual fee between $0 and $59, depending on creditworthiness. This initial fee will dig into your credit limit, but cardholders have the opportunity for a credit line increase after just seven months of responsible card use. However, the minimum starting credit limit is just $300, which could make it difficult to manage your credit utilization ratio early on.
Pros
This card doesn’t require a security deposit to open.
You could earn a credit limit increase in just seven months.
Cons
The card may charge an annual fee depending on creditworthiness.
You can’t increase your low starting credit limit with a higher deposit like you can on a secured card.
Best for a low APR
Indigo Mastercard
Rating: 2.2 stars out of 5
2.2
Even if you’ve made a major financial declaration like bankruptcy, which can affect your ability to get a credit card, the Indigo® Mastercard® is still a viable option. This card has no rewards program, has a low credit limit and may charge an annual fee, but its ongoing APR is relatively fair compared to other bad credit options.
Pros
The application doesn’t use a hard credit check, which could be helpful if you need to avoid more dings to your credit.
You could still have decent approval odds with this card, even with financial hardships like bankruptcy on your credit report.
Cons
Your starting credit limit could be as low as $300, making it difficult to maintain a low credit utilization ratio.
The issuer assigns annual fees based on your credit score, so you won’t know this added cost until after you apply.
How to choose a credit card for bad credit
If you want to pick the right card for you, you should consider the following factors. Prioritizing these will help you decide on a card that meets your needs without straining your credit-building efforts.
Know your credit score
You can request a free credit report every year.
The credit cards you’re eligible for vary based on your credit score and other credit-related factors like age of credit history. Knowing your credit score can help you navigate the cards you qualify for and help you avoid behaviors that could damage your score, like applying for too many credit cards at once. To find your score and view your report, visit Annualcreditreport.com.
Many issuers provide free access to your credit score, but you can access your credit report through the three credit bureaus for free once a year if you don’t have a credit card.
Familiarize yourself with fees
Avoid cards that charge an annual fee and a security deposit.
Issuers often require security deposits upfront to open secured credit cards for bad credit. This collateral is a refundable amount used to fund your credit limit; other cards may charge annual fees, which are non-refundable.
Credit cards for bad credit also tend to have high ongoing APRs and rarely have intro APR offers. The best credit cards for bad credit have either a reasonable annual fee or a reasonable security deposit, a lower ongoing APR and plenty of credit-building incentives.
Focus on building credit
Develop positive credit-building habits to keep your score on the rise.
An advantage of credit cards for bad to fair credit scores is the potential to help you build an even better score over time. You should always look for a card that reports to the major credit bureaus because this will ensure there is a record of your progress. Also, look for cards with incentives for positive credit habits, like credit limit increases or cards that offer the chance to graduate to a more lucrative or unsecured credit card.
The more you can improve your credit score, the better your chances of accessing higher-quality cards over time. As a lower-risk borrower, you won’t have to spend as much on the collateral requirements for cards geared toward people with 500 credit scores or lower. Consider the following tips to build your credit consistently over time.
Always pay on time. Your payment history makes up 35 percent of your credit score, and missing a payment can have drastic consequences. Consider setting up automatic payments or making a note in your calendar to ensure you always pay your bill on time.
Keep credit utilization ratio low. Use only a small amount of your available credit by setting up a few recurring bills on your card or only using it for budgeted outings. Your credit utilization ratio makes up the second-largest chunk of your credit score after payment history.
Watch your credit report. Understand how to read your credit report and keep a keen eye out for errors like an unfamiliar employer or an incorrect middle initial. Small errors like these can lower your credit score or even hint at identity theft, so it’s best to be aware of your financial standing.
Keep your starter credit card. The longer your credit history, the better. Your starter card will often be your first and oldest credit account, which can boost your score after you outgrow the card. Consider keeping the account open (as long as it doesn’t charge maintenance fees), even if you don’t use it.
The bottom line
Don’t think a low credit score leaves you out for the count on accessing decent credit cards. You may not get the most lucrative rewards rates and lowest fees, but you can build your way to better cards with responsible habits. Be sure to pick a card that reports your progress to the major credit bureaus, never miss a payment and keep your credit utilization low. When done consistently over time, these steps can lead you in the right direction.
As a Bankrate credit cards editor, Ashley Parks is fascinated by the ways people can make credit cards work for them when armed with the right knowledge.
Courtney Mihocik is an editor at Bankrate Credit Cards and CreditCards.com specializing in credit card news and personal finance advice. Previously, she led insurance content at Reviews.com and worked as the loans editor at The Simple Dollar.
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