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- If you have bad credit and are looking to apply for a credit card, you’ll first want to confirm your credit score.
- Secured cards might be easier for you to qualify for, as they typically require a lower credit score, though you’ll need to submit a security deposit.
- If you can, avoid cards with annual fees, look at options with APRs around the national average and consider your potential credit limit.
- Some cards offer perks like the potential for credit line increases and card upgrades, so keep that in mind as your compare your options.
Choosing a credit card when you have bad credit (FICO score below 670 or a VantageScore below 661) can feel dangerous — and for good reason. Predatory products can make it extremely difficult to build credit and avoid debt.
What should you look for, and what should you avoid? Two of the most important factors are whether the card is an unsecured or secured card and what fees are associated with the card. It’s also important to think about the future when you’re choosing a credit card and to find one that offers the opportunity to upgrade to a better card later on.
First, check your credit score
Before you start comparing cards, it’s a good idea to check your credit score. By knowing where you stand, you can get a better grasp of your options and what to look for when choosing cards designed specifically for people who have a bad credit score. You might even find out that your credit score is actually “fair,” which opens up more credit card opportunities for you.
Do you want an unsecured or secured card?
Next, determine whether you want an unsecured or a secured card. Unsecured cards are credit cards that don’t require a security deposit, but they may be harder to qualify for and include higher interest rates. On the other hand, secured cards require a security deposit, but they typically tend to be easier to qualify for and charge fewer fees since you’re putting down collateral. Plus, the security deposit is usually refundable.
One of the other big things to consider is fees. Often, credit cards for bad credit charge higher fees and more of them. Read the fine print to make sure you’re aware of these fees and how much you’ll owe once you have the card — particularly if you’re going to carry a balance.
Paying an annual fee can make sense if you have no other options, but you should avoid it if you can.
Fair interest rates
The APR you’ll be charged will depend on your creditworthiness, which indicates to the card issuer the amount of risk it is taking by extending you credit. You’ll typically be charged a higher APR in conjunction with a lower credit score, so a higher-than-average APR is somewhat of a given for people with bad credit.
Some credit cards for poor credit charge APRs that are truly dizzying, at around 30 percent. The average APR for credit cards is currently hovering above 20 percent, so the closer you can get to that number, the better.
Remember, because of the way credit card interest works, you won’t accrue any interest if you pay your bill in full every month, making your APR irrelevant. But if there’s a chance you might carry a balance, you need to prioritize a low interest rate option.
A good credit limit
Securing a high credit limit can be tough if you have bad credit, but you want to aim as high as you can (as long as you won’t be tempted to overspend).
Here’s why: Your credit limit affects your credit utilization ratio, which is a significant factor in your credit score. Credit utilization is the amount you owe divided by the sum of your credit cards’ credit limits. So if you have a $200 credit limit and a $100 balance on the card, your credit utilization is 50 percent. It’s recommended is that you keep your credit utilization below 30 percent. But in general, the lower that percentage, the better your credit score.
A path to better credit
Finally, when applying for your credit card with poor credit, think ahead. Many cards for bad credit offer credit line increases after you use the card responsibly for several months. An increased credit line can mean a boost to your credit score.
Also, consider the potential for a future upgrade. Most credit card issuers allow eligible customers to upgrade to a better credit card upon request. Choosing a card issuer that might be able to offer an upgrade as you work to improve your credit is important.
Lastly, make sure the card you’re considering reports credit activity to all three credit bureaus. If a lender pulls reports from TransUnion, but your credit card reports only to Equifax and Experian, the lender may not be able to see your credit activity.
The bottom line
Credit cards for people with bad credit have more pitfalls than most cards, but they can be a saving grace if you’re looking to rebuild your credit score. The best credit cards for bad credit come with minimal fees, a fair APR and credit-building opportunities like credit line increases and reporting to all three credit bureaus.