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There are a number of reasons you may be dealing with bad credit. But that doesn’t mean that credit cards are out of reach.
If you’ve been turned down for a credit card in the past or been told you have bad credit, it can be discouraging. But your credit score is a snapshot in time. It’s based on the amount of money you currently owe, whether your accounts are in good standing, and the length of time you’ve held those accounts. So if you’ve made multiple on-time payments or reduced the amount that you owe, chances are your credit score has improved.
Find the Best Credit Cards For Bad Credit
What To Know Before Applying for a New Credit Card
Apply Strategically
When researching credit cards, you want to make sure you are applying for a card that works for your circumstances. You don’t want to spin your wheels applying for cards that only accept applicantants with excellent credit, or cards with fee structures that don’t fit your needs. Start by applying for cards designed for bad credit.
When you apply for credit, the lender pulls your credit report to determine the level of risk you pose as a borrower. A poor credit score indicates to issuers a greater likelihood of being unable to meet your obligations. This pull has a small negative impact on your credit and will show for two years on your report, so be careful and plan your applications strategically when shopping for new credit. Too many applications in a short period of time can be a red flag to issuers and can hurt your credit unnecessarily.
Secured Credit Card
If you’ve been turned down for an unsecured credit card, you may want to consider a secured credit card. A secured card is a line of credit whose limit is set by a deposit provided up front. This ensures a level of safety for issuers, which makes them more likely to approve secured cards for those with less than stellar credit. You can find a variety of secured credit cards co-branded by Visa or Mastercard. A secured credit card functions exactly the same as other credit cards at the register or when making online purchases.
For example, if you want a credit line of $500, your credit card provider would require a $500 deposit upfront. Many issuers set limits for the amount you can initially deposit. If you close your account in good standing, your deposit will be returned to you. But if you default on your payment, the credit card company can use the deposit to cover your outstanding balance.
Some cards offer the ability to increase your credit line after a set period of on time payment. This can help your credit score by decreasing your credit utilization.
However, the primary benefit of secured cards is that after you demonstrate responsible credit usage, the credit card company will often extend you an opportunity to switch to an unsecured credit card. The amount held in your secured account will be returned to you or applied to your new credit card balance when you graduate to an unsecured card.
Where Can I Get a Credit Card With Bad Credit?
You can begin with Forbes Advisor’s list of Best Credit Cards for Bad Credit. This list evaluates the top cards based on annual fee and interest rates.
If you’re a member of a credit union look into the credit cards they offer. Many credit unions provide secured credit cards, and since credit unions are member-owned you may face fewer fees or lower interest. If you are currently in the military, previously served or are a family of military personnel, consider the Navy Federal Credit Union. Their secured credit card made the list above and combines low interest with the opportunity to earn rewards.
If you need additional options, both Mastercard and Visa maintain a list of their credit cards that accept applicants with bad credit.
How To Repair Bad Credit
Your credit score helps lenders determine the risk associated with lending you money. Here are a few things that can improve your score.
Ensure Your Report Is Complete and Accurate
Pull your credit report from all three credit bureaus to ensure all the information is accurate. If any of the information is incorrect or outdated, you should immediately file a dispute with the appropriate credit bureau. Pay special attention to medical debt on your report. As of July 2022, medical debt that you have paid off should no longer appear on your credit report. And beginning in 2023, medical debt under $500 will no longer be reported to the credit bureaus.
In most cases, recurring bills like rent and utilities payments are only reported to the credit bureaus when you’re delinquent. If you regularly pay these bills on time, sign up for Experian Boost. This free program adds the payment history from streaming service, rent, and utilities into the scoring algorithm. If you have a strong payment history, the program can boost your credit score.
Raise Your FICO® Score Instantly with Experian Boost™
Experian can help raise your FICO® Score based on bill payment like your phone, utilities and popular streaming services. Results may vary. See site for more details.
Make Payments On Time
Your payment history makes up the largest percentage of your credit score, 35%. So paying at least the minimum payment owed on or before the due date is the best way to build your credit. If you tend to have the money on hand but miss payments because they slip your mind, consider setting up automatic payments to ensure you don’t forget.
Reduce the Debt You Carry
The amount of money you owe is the second most important factor in determining your credit score. Creditors consider all of the money you owe on student loans, car payments or mortgages. As you pay down the principle on these loans, your debt to credit ratio will improve and your score will go up.
If you have other credit cards with balances, make sure you continue to make payments to reduce the debt owed to those creditors, as well
Start Small
If having a credit card tempts you to increase your spending, start small. Choose one bill you can put on your credit card like a cell phone or insurance payment. Pay that entire balance off each month. This will establish a regular pattern of payment and each time you make a payment that positive behavior is reported to the credit bureaus and increases your credit score.
Consider the Length of Your Credit History
If you’ve had trouble with credit cards in the past, you may have been told to close your accounts. But the length of your credit history actually impacts your credit score. Make sure to keep your oldest credit card in good standing. Your credit history is determined by all credit accounts, so when you open up a new line of credit, your credit score will take a hit.
For this reason, avoid applying for credit cards if you’ve recently taken on other loans.
Bottom Line
Even with bad credit, getting a credit card isn’t out of reach. With a little research and some healthy credit-building habits, you can get back on track with a new credit card.
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