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Best credit cards for bad credit

Mistakes happen — and when they do, they can damage your credit score. A late credit card payment or bill that went to collections can sink your FICO number, one of the most commonly used credit scores, into perilous territory. In fact, on FICO’s credit rating scale, which ranges from 300 to 850

, a score of 580 or below is designated “poor.” (Exact score ranges and ratings differ across credit scoring models and credit card providers.) But having a poor credit rating doesn’t mean you can’t get approved for a credit card — and some of our picks below can even help you rehabilitate your credit score. 

If you fall in the poor credit range, there’s plenty of potential to move up. Credit scores are fluid and can change based on the decisions you make over time. Although it may be harder to qualify for the premium cards with travel perks and bonuses when you have a less than perfect credit history, there are credit cards that can help you rebuild your history and bump up your FICO score.

The following credit cards are your best options when you need to repair your credit. Use these cards strategically by making occasional purchases and paying the balances off in full when due. 

Discover it® Secured Credit Card

Discover

Annual fee: None
Reward rates: 2% cash-back at restaurants and gas stations (up to $1,000) and 1% unlimited cashback on all other qualifying purchases
Welcome bonus: Cash-back match will match the annual rewards you earned, paid at the end of the first year 
Bonus redemption threshold: None
Credit requirement: None
Intro APR: N/A
APR for purchases: 22.99% variable APR
APR for balance transfers: 10.99% intro APR for the first six months
Balance transfer fee: 3%

The Discover it® Secured credit card offers the best value when you’re looking to rebuild your credit score. This card has no annual fees, no credit requirement and rewards potential. It’s secured, meaning you’ll need to provide a security deposit that will be held as collateral. Unlike other secured cards, your deposit of $200 or more is refundable after a track record of on-time payments. 

When rebuilding credit using secured cards, you’ll find that your card’s credit limit typically matches the deposit. It may be low at first, but if pay your Discover card bill on time for eight months or longer, you could qualify for a credit limit increase or get converted to an unsecured credit card.

In addition to credit building and the opportunity to get upgraded to an unsecured card, the Discover it® Secured credit card is a great cash-back rewards card for this credit level. You’ll receive 2% cash-back at restaurants and gas stations (up to $1,000) and 1% unlimited cash-back on all other purchases. Discover will also give you a Cash-back Match at the end of your first year, which could double the rewards you earned.

You can read our full review of the Discover it® Secured card in our best secured credit cards write-up.

Secured Mastercard® from Capital One

Capital One

Annual fee: $0
Credit requirement: None
Intro APR: None
APR for purchases: 26.99% variable APR
APR for balance transfers: N/A

Most secured cards will require you to pay a security deposit equivalent to your credit limit. The Secured Mastercard® from Capital One will give you a starting credit limit of $200 but has three deposit tiers of $49, $99 or $200. This card doesn’t come with a lot of other frills — no rewards or welcome bonus — but it’s a great option for rebuilding your credit.

In addition to potentially low deposit requirements, Capital One performs an automatic review of your account after the first six months to determine whether to increase your credit limit. And, you can receive your secured-card deposit back as a statement credit after a steady history of on-time payments.  

You can read our full review of the Secured Mastercard® from Capital One in our best secured credit cards write-up.

Chime Credit Builder Visa® Secured Credit Card

Chime

Annual fee: None
Credit requirement: None
APR for purchases: None

Chime may be best known for its free online checking account, known as a Spending Account, which offers no overdraft fees, account minimums or other hidden charges. But wait — why are we even talking about a checking account here? Well, Chime offers a Chime Credit Builder Visa card that’s fairly unique and pairs up with its checking account. The Chime Chime Credit Builder Visa is technically a secured card — it requires a deposit and reports payment activity to the credit bureaus — but functions like a prepaid debit card — you load money onto your card through your Chime checking account and there’s no interest to worry about.

While most credit-building accounts lock up a certain amount of your funds as a security deposit, Chime’s Visa works differently. You can move money from your Spending account into your Credit Builder account and the balance will serve as your credit limit. When your monthly bill arrives, you can use the funds in the account to pay off your card’s balance. There’s also no credit check involved in the application process.

Chime will report your payment activity to the three credit bureaus but not your credit utilization, so you don’t need to worry about getting penalized for having a low-limit card with a high balance. To get started, you will need to open a Chime Spending Account — don’t worry, it’s free — and have a direct deposit of at least $200 within the last year.

First Tech® Federal Credit Union Platinum Secured Mastercard®

First Tech Federal Credit Union

Annual fee: None
Reward rates: One point for every dollar spent
Credit requirement: None
Intro APR: N/A
APR for purchases: Between 9.00% and 18.00% APR
APR for balance transfers: N/A

Most cards designed to rebuild credit offer minimum rewards. The First Tech Platinum Secured Mastercard is one of the rare cards that doesn’t demand a high FICO score to deliver premium travel perks. Despite its secured nature, it’s a Mastercard, which means there are no foreign transaction fees to worry about when you travel overseas. You’ll also have access to rental coverage and travel insurance for lost/damaged luggage and trip cancellation.

The purchases you make can earn up to one point for every dollar spent. As with a typical rewards card, the points can be redeemed for travel, merchandise and more. And if you keep up the responsible spending and payment habits, your security deposit could be refunded. 

Credit One Bank® Platinum Visa®

CreditOne

Annual fee: $75 the first year, $99 to follow
Reward rates: 1% cash-back rewards on grocery, gas, cable/satellite TV, internet and mobile phone service
Credit requirement: Fair to average
Intro APR: N/A
APR for purchases: 23.99% variable APR
APR for balance transfers: N/A

The Credit One Bank Platinum Visa® for Rebuilding Credit is known to approve applicants with average or below average FICO scores. There is no need to set aside part of your savings to serve as collateral. While the annual fee is definitely a cost you should weigh carefully, if you’re able to maximize your cash-back rewards, you could make up for this fee in rewards earned.

Credit One Bank reports your payment history to the three credit bureaus and automatically reviews your payment history regularly to increase your credit limit. A higher credit limit can improve your credit utilization ratio, an important part of your FICO score. The more unused credit available to you, the faster you can work toward rebuilding credit. For the concept to work, avoid the temptation of spending more.

OpenSky® Secured Visa® Credit Card

http://www.cnet.com/

OpenSky

Annual fee: $35
Reward rates: 1% cashback rewards on grocery, gas, cable/satellite TV, internet and mobile phone service
Credit requirement: None
Intro APR: N/A
APR for purchases: 17.39% APR
APR for balance transfers: N/A

Of all the providers on this list, Chime Bank and OpenSky are the only two that don’t pull your credit to make a decision. In fact, you don’t even need to have a checking account in order to get approved with OpenSky. The OpenSky Secured Visa card also offers learning tools, which can help anyone interested in learning more about how credit works — and how to put it to best use. The website is broken up into two main categories: rebuilding credit or starting on the journey. The articles and tips are nicely laid out, breaking up the copy with simple, graphic illustrations. 

You can choose your own credit limit up to $3,000, as long as you have the selected amount saved to offer up as a security deposit. The higher your card’s credit limit, the better your credit utilization (when paired with carrying a low balance), which can help your FICO over time. However, if you’re worried about overspending with a higher limit card, we recommend choosing a smaller credit limit, preferably $500 or below. 

Best credit cards for bad credit, compared

Discover it® Secured Credit Card Secured Mastercard® from Capital One Chime Credit Builder Visa® Secured Credit Card First Tech® Federal Credit Union Platinum Secured Mastercard® Credit One Bank® Platinum Visa® for Rebuilding Credit OpenSky® Secured Visa® Credit Card
Secured? X
Purchase APR 22.99% variable APR 26.99% variable APR None 9.00% – 18.00% APR 23.99% variable APR 17.39% variable APR
Credit check Yes Yes No Yes Yes No credit check
Annual fee None None None None $75 the first year, $99 the second and beyond $35
Refundable deposit? N/A N/A
Reports payments to credit bureaus

What credit score is considered “bad credit”?

According to FICO, anyone with a score of 580 or less is considered to have poor credit (also sometimes labeled as ‘bad’ credit). There are many reasons why someone would fall below the threshold of fair to good credit. A bankruptcy or unpaid bills that went into collections are among the more common reasons. Some individuals are classified as having a below-average score after falling victim to identity theft. 

You can improve poor credit by applying for a credit repair card and making consistent, on-time payments. 

What’s the difference between secured and unsecured cards?

Most traditional credit cards fall into the unsecured card category. They’re issued based on your credit score and often come loaded with perks or rewards. Secured credit cards are designed for anyone looking to rebuild their credit. They typically require a deposit for the amount of the credit limit, which will be kept in an account that can’t be accessed until the card is closed. This deposit is typically refundable.

Although most secured cards are no-frills cards, they are making strides. Some of the more popular credit-building cards now require smaller deposits than your credit line and a few even offer cash-back rewards opportunities.

How can I get a credit card if I have ‘bad’ credit?

Just because your credit is less than stellar doesn’t mean you can’t take steps to improve it. Depending on your credit history, you may need to apply for a secured credit card, which requires a deposit for the amount of the credit limit. 

It’s best to view secured cards as a credit-rebuilding tool to set better money management habits. Use the card to make some of your regular purchases, such as gas and groceries, and make sure you pay the balance off on time each month. The method takes time, but it’s entirely possible to receive a credit limit increase — and an improvement in your credit score — in as little as six months.

What should I look for in a credit card if I have ‘bad’ credit?

Credit cards designed for consumers with poor credit don’t always have the most favorable rates and conditions. Gannesh Bharadhwaj, general manager for Karma Scale at Credit Karma, explains, “Subprime high-fee credit cards are available to consumers with the lowest credit scores. To limit risk for banks, these cards generally offer low lines of credit and come with high annual fees.” 

It’s important to read the disclosures carefully to understand what you’re applying for. Avoid cards that come with monthly subscription charges or fees for a variety of transactions. Subprime interest rates may not be ideal, but there’s a workaround — pay your balance off in full each month to avoid interest charges.

Besides the cost of the credit card, choose one with the highest credit limit possible that offers to help you rebuild your credit by reporting your activity to the credit bureaus. The best cards will also perform automatic reviews of your account to raise your credit limit, which could give your credit score a boost. 

Keep in mind that a higher credit limit helps your credit — as long as you don’t spend it. Credit utilization and payments are the two most important factors affecting your credit score. 

According to Brian Walsh, senior manager and CFP at SoFi, “Credit utilization is essentially your total credit card balances divided by your total credit limit. This is one of the most influential factors in your credit score. Generally, lower is better but it is really important to get it below 30% because anything higher can have a pretty negative impact on your score.” 

Can you get a credit card after bankruptcy?

Although a bankruptcy can remain on your credit report for seven to 10 years, you may be able to qualify for a secured credit card. It’s important to understand the timing before you get started. In most cases, you can’t apply for a new credit card until bankruptcy proceedings are over. Once you’re ready, look for a credit-rebuilding card that offers limit increases, or even returns your security deposit after a few months of on-time payments. 

You may have to start out small, with an initial limit as low as $200, but with patience and responsible money habits you can improve your credit standing.

Cards researched

  • Discover it® Secured Credit Card
  • Chime Credit Builder Visa® Secured Credit Card
  • Self – Credit Builder Account + Secured Visa Credit Card
  • First Tech® Federal Credit Union Platinum Secured Mastercard®
  • Secured Mastercard® from Capital One
  • Credit One Bank® Platinum Visa® for Rebuilding Credit
  • OpenSky® Secured Visa® Credit Card
  • Petal® 1 “No Annual Fee” Visa® Credit Card
  • First Tech® Federal Credit Union Platinum Secured Mastercard®
  • State Department Savings Secured Platinum Rewards
  • Citi® Secured Mastercard®
  • Harley-Davidson® Visa® Secured Card
  • DCU Visa® Platinum Secured Credit Card
  • Varo Believe Card

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Source: on 2021-08-28 05:56:15

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