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Building or rebuilding credit with credit cards isn’t the only way to build your credit from scratch or bounce back from a credit misstep or misfortune, but it can often be the easiest option. There are credit cards that are specifically designed to help consumers who find themselves in these situations, and they don’t have to cost an arm and a leg. To be clear, some subprime credit cards do include a number of fees, but the two cards we’re going to talk about here — the Petal® 1 “No Annual Fee” Visa® Credit Card and the Discover it® Secured Credit Card — don’t even carry annual fees.
That said, be aware that both the Petal 1 and Discover it Secured have lofty variable APR rates — 24.49 percent to 33.99 percent for the Petal 1 and 27.24 percent for the Discover it Secured — so these cards are less than ideal for cardholders who tend to carry their balances.
|Cards||Petal 1 “No Annual Fee” Visa Credit Card||Discover it Secured Credit Card|
|Welcome bonus||N/A||Discover will match all cash back earned within the first 12 months|
|Rewards rate||N/A — but 2% to 10% cash back via select merchant offers||
|Intro APR||N/A||10.99% intro APR on balance transfers for 6 months (27.24% variable APR after)|
Petal 1 vs. Discover it Secured
Welcome bonus winner: Discover it Secured
Neither card offers a traditional welcome bonus (where you’ll earn bonus points or cash back after meeting a card’s spending requirement within a specific timeframe), but Discover will match all of the cash back you earn during the first year. For example, if you earn $150 in cash back during the first 12 months of card membership, you will receive another $150 from Discover at the end of the year, for a total of $300 in cash back.
Rewards rate winner: Discover it Secured
While Petal 1 doesn’t offer a traditional cash back program, Discover it Secured does. Cardholders will get 2 percent cash back at gas stations and restaurants (on up to $1,000 in combined purchases per quarter, then 1 percent) and 1 percent cash back on all other purchases.
However, note that Petal 1 has a limited cash back program called Merchant Offers — where cardholders can earn 2 percent to 10 percent cash back at select merchants — but this is a much weaker offer than earning cash back on all purchases.
Annual fee winner: Tie
Neither card carries an annual fee.
Foreign transaction fee winner: Tie
Neither card charges a foreign transaction fee. That said, keep in mind that Discover cards tend to have more limited acceptance abroad than Visa cards, so Petal 1 may be more useful to cardmembers traveling abroad.
Which card earns the most?
Since the Discover it Secured includes a traditional cash back rewards program while the Petal 1 only includes a limited Merchant Offers program, the Discover it Secured would earn more rewards for the average consumer.
Petal 1 vs. Discover it Secured spending example
If you maximize the Discover it Secured’s 2 percent cash back at gas stations and restaurants (on up to $1,000 in combined purchases per quarter, then 1 percent back), you’ll get at least $80 in cash back per year, plus 1 percent cash back on all other purchases. And that’s before the Discover match at the end of the first year.
So, say you spend $12,000 per year. You’ll earn $80 in cash back on $4,000 spent at restaurants and gas stations, plus 1 percent cash back on $8,000, netting you another $80 in cash back. So, for the first 12 months, you’ll earn $160 in cash back and your total cash back haul will be $320 at the end of the year.
The Petal 1, with its limited cash back program at select merchants, would not be able to beat the cash back you can earn from the Discover it Secured (in most cases).
Why should you get the Petal 1?
Unlike the Discover it Secured, the Petal 1 is a traditional unsecured credit card. If you don’t want to put down a minimum security deposit, and if you don’t care much about the Discover it Secured’s cash back program, you may find the Petal 1 more appealing. Also, the Petal 1 doesn’t require you to have an established credit history and it may look into your banking history (besides your credit score) to establish your creditworthiness.
- Auto rental collision insurance. Decline additional insurance at a car rental office and Petal 1 will cover your rental in case of theft or accident.
- Petal’s Leap program. Petal 1 cardmembers can have their credit limit increased after six months of consecutive payments as long as they stay within a specific credit score range.
- Merchant Offers. You can earn 2 percent to 10 percent cash back at select merchants.
- Free credit score access. You can see view your credit score (from Experian) every month.
- Visa Local Offers with Visa and Uber. You can earn Uber credits when you use your card at more than 1,000 merchants near you.
For cash back earned with Merchant Offers, you can redeem cash back as a statement credit in any amount or else as a check or an ACH transfer to your bank account if you have a balance of at least $20.
Recommended credit score
No credit history is required to apply for the Petal 1.
Why should you get the Discover it Secured?
For all the advantages of the Discover it Secured credit card, its main disadvantage is in the name — it’s a secured credit card. That means you’ll need to put down a security deposit (from a minimum of $200 to a maximum of $2,500) to open an account, which will be equal to your credit limit.
In terms of building or rebuilding credit, secured cards work the same way as unsecured cards. But if you like earning steady cash back and don’t mind a security deposit, you may prefer the Discover it Secured to the Petal 1 since the former offers a traditional cash back program and Discover Cashback Match.
- Chance to qualify for an unsecured card after seven months. After seven months, Discover will review your payment record and credit standing to decide if you qualify for an unsecured card. If you do, your security deposit will be returned.
- FICO credit score access. You can view your FICO credit score (from TransUnion) through your account and you’ll be able to see up to a year of recent FICO scores online.
- Late payment forgiveness. Discover will waive the late fee on your first late payment (then up to $41).
- Discover Identity Alerts. Discover will monitor your Experian credit report daily and alert you when a new inquiry or account appears on your report. In addition, it will monitor thousands of Dark Web sites known for exposing personal information and alert you if it finds your Social Security number on one of those websites.
- Online privacy protection. Approximately once every 90 days, Discover will scan 10 select people-search sites for your personal information and submit opt-out requests on your behalf. Only available in the mobile app.
You’ll have several ways to redeem cash back:
- Apply toward your Discover bill as a statement credit
- Deposit to your banking account
- Pay with your Cashback Match bonus at checkout at Amazon.com and PayPal.com
- Buy gift cards (starting at $5; look for discounted gift cards)
- Make a charitable donation
Note that, unlike some other credit cards, your Discover cash back never expires.
Recommended credit score
No credit history is required to apply for the Discover it Secured.
The bottom line
Both the Petal 1 “No Annual Fee” Visa Credit Card and Discover it Secured Credit Card are solid, low-cost contenders for consumers looking to build or rebuild their credit. Since both cards have no annual fees, which card you should choose comes down to this: If you’re looking for cash back, choose the Discover it Secured, and if you’re interested in an unsecured card, pick the Petal 1. Remember, though, that your path from a secured card to an unsecured card with Discover can be as short as seven months, provided you use your credit responsibly.
However, keep in mind that, while the Petal 1 and the Discover it Secured are among the best credit cards for bad credit, they aren’t the only ones. Before you make a decision, you should check out other options to make sure you find the best fit for you.