If you have bad credit, you may find you have a hard time getting a good credit card – or getting a new credit card at all. However, this is an avenue worth pursuing, as credit-building cards used wisely can help you improve credit scores and get more of the good things you want in life.
This post recaps the credit cards that many financial experts believe are best for bad credit and how to improve your credit score by making on time and as-agreed payments. Selecting the right credit card for you is a positive first step towards the goal of improving your credit score.
What Is “Bad Credit”?
Before assuming you have bad credit, it’s a good idea to check your FICO credit scores. Each of the three major credit reporting agencies (CRAs) has a different scoring algorithm. Check all three to know where you stand and then take steps to improve your credit.
In general, your credit scores can range from 300 to 850. If you have bad credit, your scores probably range from 300 to 629. That means you’ll pay more for credit. You may be asked to pay additional fees, such as an annual cardholder fee, or pay higher charges for a late payment. The lender assumes higher risk by lending to borrowers with bad credit.
Cost of Bad Credit
According to the Wall Street Journal, lenders of all types are much less likely to extend credit to someone with bad credit. When searching for a credit card for bad credit, know that not all credit cards for bad credit are created equal.
Top Three Credit Cards for Bad Credit
Depending on your credit history, you may need to open a secured credit card account or qualify for an unsecured card. Here are three credit-building cards you should consider now.
Capital One Secured MasterCard
Although you’ll be asked to provide Capital One with a security deposit to fund the initial credit line, Capital One’s Secured MasterCard has many great features. There’s no annual fee and, unlike many other secured credit card issuers, Credit One regularly reviews your account to offer credit line increases. You may be offered an increased credit line after just five months of making timely credit card payments. Other advantages include:
- After opening the Capital One Secured MasterCard, all three CRAs will receive a monthly report of your payment history.
- Depending on your current creditworthiness, Capital One determines the initial security deposit. Capital One may ask for a dollar-for-dollar security deposit.
- For instance, if you have bad credit and little credit history, Capital One may ask for a USD 200 security deposit to secure a USD 200 credit line. Your security deposit remains intact until CapitalOne recommends an upgrade to your account.
- Capital One is a leading financial services company in the U.S. Your credit card statement is easy to read. It’s simple to pay your bill electronically. There’s no need to wait days or weeks for your payments to clear.
- Capital One offers free access to TransUnion’s CreditWise app. There’s no cost to check your TransUnion scores.
- As a Capital One customer, you can take advantage of a full menu of financial services if you so desire. It’s possible to open an online checking/savings, CD deposit, retirement, and investment account at Capital One and keep track of your money online.
- As an established customer with improving credit, you can also apply for other loan products, such as a car loan.
Although Capital One Secured MasterCard’s annual percentage rate (APR) is currently 24.99 percent, you can also improve your credit by paying the monthly balance in full.
Credit One Bank Cash-Back Rewards Visa
If you travel for business or use a credit card on a regular basis, the Credit One Bank Cash-Back Rewards Visa has many benefits. Unlike other credit card issuers, it’s possible to check your prequalification for this card without generating a hard inquiry. Too many hard inquiries on your credit reports can depress credit scores.
Unlike the Capital One Secured MasterCard, you don’t fund the Cash-Back Rewards Visa with a security deposit. Credit One Bank requires an annual fee of USD 0 to 99, depending on your creditworthiness. Here are other positive features of the Credit One Bank Cash-Back Rewards Visa:
- You won’t need to tie up money in a security account.
- You receive one percent cash-back on many items, such as gas and/or groceries. Check the terms and conditions for more information.
- You receive free credit score tracking to keep tabs on your credit score.
After demonstrating responsible credit use, Credit One Bank may offer additional opportunities to increase your line of credit. Credit One Bank Cash-Back Rewards Visa offers a lower 15.65 to 24.15 percent variable APR. If you need to carry a monthly balance, it’s important to choose a credit card with a competitive APR.
Most customers report that the Credit One Bank Cash-Back Rewards Visa initial credit line is on the low side. If you need a larger credit line right away, you might not get the functionality you’re looking for with this card.
However, if credit-building is your main goal, take it slow. Use less credit than you have available. Financial experts recommend using no more than 30 percent of your available credit each month. For instance, if you have a USD 500 credit line, use no more than USD 150 per month.
Make on-time payments and, when possible, pay off your credit card balance in full at each billing cycle to improve your credit scores as quickly as possible.
USAA Secured Card Platinum Visa
If you’re a member of the military or an eligible family member, the USAA Secured Card Platinum Visa might be a good choice for you. Your security deposit (minimum USD 250) funds a two-year USAA Certificate of Deposit (CD) that earns interest as you improve credit scores. Most secured credit card programs don’t offer interest on your security deposit.
It’s possible to deposit up to USD 5,000 in the USAA CD. A larger deposit qualifies you for a larger credit line on a dollar-for-dollar basis.
Here are some of the benefits of the USAA Secured Card Platinum Visa:
- Earn interest on your security deposit as you build credit scores. Make regular payments on time and the interest is yours to keep. Read the terms and conditions concerning defaulted accounts. You’ll lose the interest on your security deposit if you don’t pay your credit card bills as agreed.
- USAA’s secured card program makes it possible to get a credit card, even if you’ve never had a credit card or now have bad credit.
- The USAA secured Visa offers chip technology. If you plan to travel outside of the United States, this fact may be important to you. Some secured cards are still “swipe” format cards and, unfortunately, not all international merchants will accept these cards today.
USAA Secured Card Platinum Visa cardholders pay a USD 35 annual fee and a variable 10.15 to 20.15 APR. Pay your account in full each monthly billing cycle to avoid interest charges. Take advantage of other USAA member benefits if you’re so inclined, including car-buying service, car insurance, shipping discounts, and more.
Use the top three credit cards for bad credit as part of a credit-building program. Check your credit reports regularly. Dispute any errors you find because, according to the Federal Trade Commission (FTC), many consumer credit reports contain errors.