Do you need a new credit card, but are afraid your credit history might get in the way? There are credit cards designed to help people improve their credit — some even offer no credit checks and the ability to upgrade after you establish a positive usage history. Read on to learn more about potential options, and things to consider when trying to find a credit card if you have bad credit.
What to Consider to Get a Credit Card If You Have Bad Credit
1. Looking Up Secured Credit Cards
A history of bad credit can make it challenging to obtain new credit. That’s where secured credit cards come in. Secured credit cards are designed for people who are new to credit or rebuilding their credit, and some don’t even require a credit check.
Now, it’s important to note that secured credit cards don’t often come with high credit limits, so they might not be able to help you finance a large purchase. Typically, the balance is equal to the security deposit you put down, though some go higher than that. In general, it might be helpful to consider secured credit cards as a tool to build credit first, so you can then later have a better chance to be approved for credit cards with higher limits.
It should be noted that you don’t have to go the secured credit card route if you have bad credit. There are other credit cards for bad credit out there, but many of them come with more fees than standard credit cards. What’s more, those fees often don’t get refunded, whereas a deposit on a secured credit card is often refunded if you pay the card in full before you close it.
2. Saving Up a Security Deposit
It probably goes without saying that you’ll likely have to save up for a security deposit if you choose to try a secured credit card. As mentioned, the potential downside is that the deposit is often equal to the credit limit, thus creating a situation where you get credit, but only with the exchange of money you already have.
However, there are some secured credit cards with low deposits and higher credit limits. The Secured Mastercard® from Capital One®, for example, comes with no annual fee and a security deposit as low as $49. The credit limit on this card starts at $200.
Most often, though, you’ll see a secured credit card that requires a deposit of $200-$300. This isn’t a small sum of money and could take months to save up, but remember the money often gets returned if you pay the card in full when you close it. Think of it like a security deposit on an apartment — assuming all goes as it should, you should end up getting your money back at the end.
3. Looking for the Card That Best Meets Your Needs
If you want to apply for credit cards with bad credit, you might assume you don’t have a lot of options. However, there could be more than you realize.
For starters, there’s a large variety of secured credit cards out there. What’s more, some come with features such as annual account reviews that can lead to automatic upgrades or the ability to earn rewards points. Just like with all financial decisions, it’s important to carefully evaluate all the options so you can find the best one for you.
Here are a few things to consider as you do:
- Does this card come with an annual fee?
- Does this card require a security deposit, and how much?
- Does this card come with automatic account reviews that can lead to an upgrade to a traditional credit card?
- Does this card enable me to earn rewards of any type?
- How much is this card’s late fee, and does it charge a penalty APR for late payments?
- What other fees does this card come with?
If you really want to go the extra mile, you could pop these questions in a spreadsheet along with each card you want to apply for, giving you the chance to compare them side by side. Once you find the credit card you want, you can probably apply quickly and easily online.
Upgrading to Standard Credit Cards
The good news about getting a credit card for bad credit is that it usually doesn’t take long to qualify for more traditional credit cards if you exhibit consistent positive behavior. High on the list of factors that determine your credit scores is payment history — so one easy way to build or improve credit can be to make all your monthly payments on time.
Aside from that, you can work toward better credit by keeping your balances low (30 percent of your credit limit or less). Length of credit history is an important factor as well, and you can work on that one by opening a line of credit (like a credit card) and keeping it open.
Generally speaking, payment history and credit utilization are the two most influential factors in credit scoring, so focusing on these steps should be a great start to improving your credit. Before long, you might find yourself moving up to a traditional credit card.
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