Individuals with poor credit have the fewest credit card possibilities. This is due to the fact that few credit card companies want to take the risk of extending a credit limit that may not be paid for. The worse your credit score, the more difficult it will be to obtain credit, although it is not absolutely hopeless. Even if it’s difficult, you can get a credit card with bad credit.
What Is the State of Your Credit?
You probably know you have bad credit because you have previously been declined for a credit card, loan, or other credit-based service.
Check your credit score to discover where you stand if you haven’t previously.
If your credit score was the reason you were denied credit, you may receive a credit score automatically in the mail. Instead, you can get your credit score from FICO directly through myFICO.com or through any of the three credit bureaus. Discover and Capital One are two credit card companies that provide credit scores to its cardholders. CreditKarma.com, CreditSesame.com, and Quizzle also provide free versions of your credit score.
Be wary of websites that claim to provide free credit scores as a ruse to sign you up for a credit monitoring subscription service. If you have to enter your credit card number to get the “free” credit score, you’re probably signing up for a trial subscription and will be charged if you don’t cancel.
Credit Cards for People Who Have Poor Credit
There are very few credit cards designed specifically for people with poor credit.
According to CreditKarma.com, the Capital One Classic Platinum accepts applicants with credit scores as low as 577. The card has a regular APR of 22.9% and a $39 annual fee. If you ask, you might be able to get the annual fee waived.
Credit cards from Orchard Bank were historically a viable alternative for persons with weak credit.
However, in 2012, Capital One acquired the company that issued Orchard Bank cards (HSBC), and the Orchard Bank cards were withdrawn.
Retail establishments have a reputation for allowing individuals with poor credit. You have a better chance of getting authorized for a restricted purpose credit card that can only be used at that store than a Visa or MasterCard credit card. Retail store credit cards typically have limited credit limits and hefty interest rates. The ideal method to manage a credit card like this is to charge only a minimal amount and pay your balance in full each month.
Be Prepared to Make a Deposit
Many borrowers disregard secured credit cards because they require a security deposit against the credit limit. A secured credit card that reports to the major credit bureaus is preferable to no credit card at all. After a year of on-time payments, many secured credit cards can be converted to unsecured credit cards.
If the security deposit is preventing you from obtaining a secured credit card, start accumulating $50 each month in a savings account. You’ll have $300 in six months to use toward a secured credit card. Part of the funds can be used to cover the application cost, while the remainder can be used to your credit card balance.
Yes, you will have a low credit limit at first, but this is also true for unsecured credit cards for bad credit.
Depending on your credit score, the Capital One Secured MasterCard allows a security deposit as low as $49 or $99 for a $200 credit limit. If you have severely bad credit, you’ll have to pay the entire minimum $200 security deposit, but you can save $50 per month for four months and pay it off in four months.
Make the necessary sacrifices to achieve your credit-improvement goal. Your deposit will be returned to you as long as you are careful with your payments and do not default on the balance.
Don’t waste time looking for credit cards for people with good or excellent credit.
Avoid applying for credit cards geared at those with excellent credit “just to see” if you’ll be approved. You’re extremely likely to be denied, and additional applications can further harm your credit score.
The benefits provided by a credit card usually indicate that it is intended for someone with excellent credit. Credit cards that offer great rewards, low APRs, and promotional interest rates are almost always aimed at people with good credit. Candidates with weak credit are typically refused.
What to Look Out For
Be wary of fee harvester or subprime credit cards, which impose large upfront fees that consume the majority of your credit limit. Since federal law limits fees to 25% of the credit limit, at least one subprime credit card company has gotten around the restriction by charging a $90 fee before issuing the credit card. Credit cards issued by First Premier and Credit One banks are examples of those to avoid.
Prepaid cards are frequently advertised as a viable option for people with poor credit, but they are not credit cards. Prepaid cards require a deposit before they can be used to make purchases. Prepaid card purchases, unlike secured credit cards, are deducted from your balance. Prepaid cards also do not help your credit because they do not report to the major credit bureaus. (They can’t since they’re not a credit product.)
The Bad Credit Card Will Not Last Forever
Credit cards for people with bad credit typically have the least appealing credit card terms. You’ll have to deal with annual fees, high interest rates, low credit limits, and occasionally poor customer service, but only for a limited time. Expect this temporary credit card situation to be far from ideal. Your goal is to pay your bills on time and repair your credit so you may qualify for a better loan, which can be accomplished in 12 to 18 months if you are responsible with your credit.