Credit cards for consumers with bad credit
People who have a low credit score find it pretty difficult to get conventional credit cards. Most traditional institutions like banks and financial institutions look for a certain minimum credit score before they qualify or pre-approve a customer for a credit card. After all, these institutions are looking to lend (a credit card is a form of lending) to people who they believe have a good probability of returning back the money.
Interestingly, there are a few credit cards which cater to consumers with credit scores as low as 300. The terms and conditions might be a bit different and the interest rates might be a bit higher. But, as someone who has a less-than-perfect credit score, you can get a credit card if you know where to look.
More than just a line of credit
While many people want to have a credit card so that they can purchase more, credit cards are not just a source of a credit line. They can also be used to build your credit score. This point is especially critical if you have a low credit score. As many of the cards meant for people with bad credit report the account information to credit bureaus, your credit report gets impacted by the “bad credit” credit card. You can use this impact in a positive way and use a credit card responsibly to build up your credit.
Secured vs Unsecured cards
There are two types of credit cards that bad credit consumers can go for: secured credit cards and unsecured credit cards. Secured credit cards are credit cards where you pledge a refundable security deposit with the card issuing institution. This security deposit is also your credit card limit. So, you can only spend what you can repay and are protected from any instance of default or spending out of control. These credit cards have a pretty high rate of approval and are often cheaper than unsecured credit cards. As a bonus, they report your account information to credit bureaus, so you can use them to build up your credit.
An unsecured credit card does not require the refundable security deposit as is the case with secured credit cards. That, in turn, means that approvals are much more stringent. The fees are also higher. The credit limit is also set by the issuing authority and it is not dependent on your ability to deposit a higher amount as is the case with a secured card. If you really want to increase your spending limit because you are earning more or you happen to have more cash, you can simply pledge a higher amount in the case of a secured credit card. With an unsecured credit card, you do not have that option. Unsecured credit cards are recommended only when you have a real emergency need for a loan, that too a small amount of loan (say $150 or $200).
The best credit cards for people with bad credit
So with the above information, it should be somewhat clear that the best kind of credit card for a person with bad credit is a secured credit card that does not charge much in terms of fees, has flexibility in terms of minimum and maximum amount for the security deposit, and has a straightforward fast approval process. The ideal scenario would be a zero annual fee secured credit card that also gives you rewards features and cashback perks. That brings us to the first card on our list, the Discover It Secured Card.
- Discover It Secured Card
Discover is a pretty well-known name in the credit card industry. The Discover It Secured credit card offers a person with even bad credit a chance to build up their credit score. The application looks at a limited amount of credit history in case if you are worried about your challenging past. Best of all, the card does not charge any annual fees. So, you can start rebuilding your credit without any additional cost. APR on purchases is quite steep at 24.99%. You can also convert your purchases into a loan/APR with this card. APR intro special for the first 6 months is 10.99% with a 3% transfer fee. After the 6 month intro period, the APR is the normal 24.99%. As a bonus on this card, you get cashback rewards of around 2% for select gas station and restaurant purchases. There is also a 1% cashback on other regular purchases. $200 is the minimum that you need to contribute towards the refundable security deposit with this card. The grace period for making payment of credit card bill is 23 days.
- Discover It Secured Card
- Capital One Secured Mastercard
Capital One has a great secured credit card that offers you a line of credit and a chance to rebuild your credit score. The unique thing about the Capital One card is that everyone who applies and gets approved gets a $200 line of credit. However, not everyone pays $200 refundable deposit. You could pay as low as $49, $99, or $200 depending on your credit history. Capital One takes the call as to what deposit you have to pay. As a result, it might give you a higher limit than your deposit, which makes it different from a conventional secured credit card.Another great thing about this card is that your credit limit has room to increase after you make 5 monthly payments. So, if you are responsible enough and consistent in your bill payments, you will grow your credit limit. The application looks at a limited amount of credit history in case if you are worried about your challenging past. Another good news is that this card does not charge any annual fees. Regular APR rate is 24.99%, just like the rate with the Discover It Secured card. One major disadvantage that the Capital One card has is that there are no cashback rewards. You simply use the credit card to make purchases and rebuild credit. You get 25 days to make your credit card bill payment with the Capital One Secured card. The phone support and mobile app give you the option of 24/7 management of your account.
- Capital One Secured Mastercard
- Credit One Bank Platinum Visa
Credit One Bank Platinum Visa is the lowest cost unsecured credit card for bad credit. It charges an annual fee between $0 and $99 depending on your credit profile. This card is great for someone who is looking for an emergency loan to bridge the gap in making unexpected medical expenses or unexpected costs such as a car breakdown. The initial line of credit offered by the Credit One Bank Platinum Visa card is $300 which covers many of the urgent cash needs that one might have.APR rates of this card are quite high since it is an unsecured credit card. They vary between 20 and 25% depending on your creditworthiness. Cashback rewards are almost insignificant in comparison, a mere 1% on select purchases. Payment terms for repayment of credit card bill also vary but are generally 24 days. Monitoring your account with the Credit One Platinum card is easy as you can set up email and text alerts. You can also track your credit-building progress with free online access to Experian’s credit score information though terms and conditions apply to this feature and you will have to see the fine print for your particular case.
While unsecured credit cards are not recommended unless it is an emergency, this card is great for short-term use where you can meet an emergency expense or build up your credit to a reasonable enough level from where you can get a regular credit card. Either that or use this card to weather the storm and build enough cash position from where you can go for a secured credit card.
- Wells Fargo Secured Credit Card
Wells Fargo offers a great secured card that is known for offering pretty high credit limits. The range for credit limits varies between $300 and $10,000. That is as high as we have seen in secured credit cards. The minimum refundable security deposit for this card is $300. The APR is close to 20% which is somewhat in line with other secured and unsecured cards.Being a secured credit card, the rate of approval is quite high. But you do have to pay $25 as annual fees. This is a key distinction from the Discover It card and the Capital One card that we reviewed above. Wells Fargo does share credit card activity with credit bureaus. Hence, you can keep an eye on your progress as far as building your credit is concerned.
Other useful benefits offered by this card include roadside dispatch when you have a car breakdown, travel assistance, emergency assistance, cell phone protection plan, and auto rental collision waiver. There is, however, no cashback offer with this card. The grace period for making payment of credit card bill is 25 days.
- OpenSky Secured Visa Card
OpenSky Secured Visa credit card is known for its fast approval process. It does not require a credit check. Hence, not only is the on-boarding quicker, but you also do not have to worry about any holes in your past credit history. Many other cards perform a hard credit check which slightly lowers your credit score. With the OpenSky card, you can rest easy in knowing that your credit score (however low it may be) will not get affected because no credit check is performed during the application process.While secured credit cards are open to people with bad credit, someone who has recently been through a bankruptcy or someone having tax lien will find it difficult to get a secured credit card. But, with the OpenSky secured card, that does not seem to be the case. The OpenSky Secured Visa card does come with an annual $35 fee. But, for a relatively low cost, you have the opportunity to build up your credit. The card reports account information to all the three major credit bureaus.
$200 is the minimum amount that needs to be pledged as the security deposit for the OpenSky Secured Visa card. The grace period for making payment of credit card bill is 25 days. APR rate is 19.14%, slightly lower than what other cards are offering. There are no cashback rewards on this card. It is just a secured credit card which allows you to transact and improve your credit score.
Some things to keep in mind
After reading the reviews above, we hope that you have built a basic framework on how to compare and evaluate various credit card offers when you have a bad credit. Keep the following points in mind as you search for the card that best suits your purpose:
- Check the fees: Annual fees, monthly fees, or one-time fees are all costs that you must bear. The lower the cost, the better it is for you. After all, you want your credit rebuilding to be as inexpensive as possible. So, keep an eye on all the fees associated with the credit card that you are considering.
- Pay all your bills before applying:
While the topic of this article is getting credit cards with bad credit, you can still help yourself by making sure that you have a clean slate. Pay your previous outstanding credit card bills, utility bills, and any other bills that are pending. Too many delinquencies will not look good even on a bad credit credit card application. Do this for the application and for yourself. It will help you irrespective of whether you get a new credit card or not.
- Secured credit card is not guaranteed: Do not get the impression that a secured credit card has a 100% approval rate. Yes, it is easier to get such credit cards even with bad credit but nothing is guaranteed. You can get rejected if something on your credit report is deemed to be a negative. Try to apply after you have done everything possible to improve your credit situation. That will maximize your chances of getting approved.