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7 Best Credit Cards for Bad Credit of January 2020

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When you apply for a regular credit card, you’re essentially asking the card issuer to lend you money without any guarantee (besides your promise) that you’ll pay it back. Unlike with a mortgage or car loan, there’s no collateral backing up the deal. If an applicant doesn’t have a good credit score, the issuer considers the risk to be too big, and that’s why it rejects the application.

Credit cards for bad credit, however, have features that reduce the risk to card issuers, so they can approve more people. The application process for credit cards for bad credit is more “forgiving” than for regular credit cards. Credit cards for bad credit might be a good fit for you if:

In general, a credit score below 630 (on a range of 300-850) is considered bad credit or poor credit. If you don’t know your credit score, you can get it for free through NerdWallet. Get your free credit score here. If you have a bad score, a credit card specifically designed for people in your situation is one of the best tools for rebuilding your credit.

Score rangeCredit type
300-629Bad
630-689Fair/Average
690-719Good
720-850Excellent

YOU HAVE NO (OR VERY LITTLE) CREDIT HISTORY

The term “bad credit” is commonly associated with mistakes, such as missing payments or having accounts turned over to collection agencies. But people who have a thin credit history or none at all can also benefit from a credit card for bad credit, since they, too, are considered risky borrowers.

What causes bad credit?

Multiple factors go into credit scores. Some are relatively minor — applying for a new credit card, for example, can knock a few points off anyone’s score temporarily because it suggests a need for more financial resources. Others are more serious. Bankruptcy, charge-offs or missed payments can do major damage to credit scores.

Here are the main factors in your credit score and how they can add up to bad credit:

  • Payment history. This is the single biggest factor in your score. Are you paying your bills on time? Paying a bill a couple of days late might not affect your credit score at all (although you might get hit with a late fee). But once a bill is more than 30 days late, expect it to show up on your credit report and affect your score. Even a single late payment can make a major dent in your score. That damage lessens with time, but if you’re repeatedly missing payments, it gets much worse.
  • Amounts you owe. Your overall debt load matters, but scoring systems pay special attention to credit utilization — the amount of your credit limit you’re using. The closer someone is to “maxing out” a line of credit, the more likely it is that they’re in a bad financial position. A $190 balance on a card with a $2,000 limit isn’t going to raise a lot of red flags, but a $190 balance against a $200 credit line suggests someone pushing the limits of their means.
  • Length of credit history. If you haven’t had credit very long, that can be reflected in low scores. A common mistake people make is closing old accounts that they’re not using, which affects this portion of their score. A 10-year-old credit card account is valuable from a scoring perspective, even if the card is just sitting in a drawer. If it doesn’t have an annual fee, keep it open and use it once a year so the issuer doesn’t shut it for inactivity.
  • Types of credit. Scoring formulas like to see a mix of different types accounts — credit cards, loans and so on. Obviously, you have to start somewhere, but it’s best not to let a single account be your entire credit history.
  • New credit applications. Expect every application to knock a few points off your score temporarily. However, if you’re applying for multiple cards at once, the effect is multiplied, because that can suggest someone desperate for money. This is why it’s important to “call your shots” and apply only for cards when you have a good chance of approval.

What’s the easiest credit card to get approved for?

Approval for any credit card is never guaranteed. In addition to your credit history, issuers look at your income and other factors. Still, some cards have standards that are not as difficult to meet as others’.

  • The lower the risk to the credit card issuer, the easier it is to get approved. That’s why secured credit cards are a recommended starting point for people working to build or mend credit. These cards require you to put down a cash security deposit, which the issuer holds as collateral in case you don’t pay your bill (and which you get back when you close or upgrade your account). The deposit reduces the risk, so issuers can make these cards available to more people. The cards on this page are all secured cards.
  • Store credit cards are also generally easier to qualify for than bank cards. They tend to have low credit limits and high interest rates, but they’re a viable credit-building tool provided you keep your balances low relative to the limit and pay them off each month.
  • In general, NerdWallet does not recommend unsecured cards for bad credit. An unsecured card is one that does not require a security deposit. All “regular” credit cards are unsecured. But unsecured cards marketed to people with bad credit are notorious for high fees and confusing terms. Further, issuers of such cards usually don’t have good cards to upgrade to, meaning you’re stuck with either keeping a high-fee card open (which costs you money) or closing it (which could hurt your credit score). Most of the options in our “Credit Cards to Avoid” section below are unsecured.
  • If you’ve begun to build credit and have a score in the mid-600s, look at credit cards for fair credit. These provide more benefits but don’t require a top-tier credit score. See our best credit cards for fair credit.

The costs of bad credit

Credit scores are designed to measure one thing: How much of a risk it is to lend someone money. The lower the perceived risk, the higher the score. Having bad credit limits your options for borrowing money: If you can get a loan at all, you’ll pay higher interest.

There are other costs, too. Even though they’re not designed as such, credit scores have come to be interpreted as a general measure of reliability. Employers, landlords, insurers, cell-phone providers, utility companies and others use them to evaluate customers or applicants.

A NerdWallet survey found that many people are unaware of these effects. Significant numbers of Americans didn’t know that bad credit could prevent them from renting an apartment (23%), raise their car insurance costs (43%), limit their options for cell-phone service (49%) or force them to provide security deposits for utility service (52%). Further, 1 in 5 respondents thought a score of 600 — which is bad credit — was enough to qualify for any credit card.

If you have bad credit, or no credit, a card designed specifically for someone like you is usually the quickest and easiest way to build credit.

Choosing a credit card for bad credit

Credit cards for bad credit typically come with low credit limits and high interest rates. That’s OK for now, because the primary purpose of these cards is to help you build credit or rebuild credit. When choosing a card, focus on:

  • Reporting to credit bureaus. A card will help you build credit only if it reports your payments to the companies that assemble the credit reports that are the basis of credit scores. Look for a card that reports to all three major credit bureaus. Note that prepaid cards do not report to the credit bureaus because they do not involve borrowing money.
  • Low fees. Unsecured credit cards for bad credit often boast that you can apply for them with no deposit. But then they hit you with annual fees, maintenance charges and other credit card fees that can easily top $100 a year. Good secured credit cards have either no annual fee or a fairly small one, and no hidden charges. You do pay a deposit — but you can get that money back.
  • Free credit score. Look for an issuer that provides free access to your score so you can track your progress. Ideally, the issuer would also offer other resources such as debt-payment calculators and free financial education programs.
  • A path to upgrade. Once your credit improves, it’s nice to be able to convert your account to a card with better terms. If you have a secured card, will the issuer transition you to a regular unsecured card? If you have an unsecured card for bad credit, can you move up to a version with no fees or one that offers rewards?

Read more in our guide to choosing a credit card for bad credit.

How to apply for a credit card for bad credit

1. Know your credit score

One of the biggest mistakes people make with credit card applications is choosing cards they don’t qualify for. Applying for a card that requires good credit when you have a score of 580 is a guaranteed rejection. That wouldn’t be so bad except that each application goes on your credit report and can hurt your score. Multiple applications can just compound the damage. Before you apply, know where you stand. You can get your free credit score through NerdWallet.

2. Find a card that suits your score

Cards on this and other NerdWallet pages have a “recommended credit score” graph that shows what kind of credit you’ll need to qualify. If you’re logged in to NerdWallet with your free score, you’ll be able to see where your score lands on that graph. If you’re not logged in but know your score, check how it compares to the recommended range.

3. Apply

Clicking the “apply now” button for a card takes you to the application. You’ll usually have to provide your name, address, phone number and email address. Your Social Security number is necessary to check your credit and for government financial reporting rules. The application will usually ask about your income as well.

4. Fund your security deposit

With a secured credit card, the issuer won’t open your account until you’re provided your security deposit. Most cards have a minimum in the range of $200 to $300. Your deposit typically determines your credit limit, so if you deposit $500, you’ll have a credit limit of $500; deposit $1,000, and you’ll get a credit line equal to that amount. Issuers let you fund the deposit with a direct transfer from a checking account; some allow you to pay by money order if you don’t have a bank account.

5. Receive your card

Once you fund your deposit, you’ll get your card. Start using it to build a positive credit history by following the guidelines below.

How to raise your credit score using a credit card

A low credit score isn’t a life sentence. It’s a starting point. Using a credit card responsibly is one of the fastest ways to build credit. Follow these tips:

  • Use the card. Building a good credit history starts with making on-time payments. So use your credit card regularly and pay your bill before your due date.
  • Don’t overuse the card. A key element in your credit score is your credit utilization, or how much of your available credit you’re using. A maxed-out card is a sign of someone in financial trouble. So keep utilization below 30% at all times. On a card with a $300 credit limit, for example, that means you should keep your balance under $90.
  • Pay on time and in full. With any credit card, the best move is to pay your entire balance in full every month. That way, you’ll never pay interest — and the interest rates on credit cards for bad credit are typically very high. If you can’t pay in full, pay at least the minimum amount due by your due date.
  • Track your progress. Check your credit score and credit report regularly to see whether you’re moving in the right direction or if other things are holding you back. You can get free access to your credit score and credit report on NerdWallet
  • Keep accounts open, if possible. The age of your open credit accounts is a factor in your credit score. So don’t close accounts unless there’s a compelling reason, such as an annual fee on a card you don’t plan to use. When it comes time to upgrade from a secured card to an unsecured one, see if your issuer will let you keep your same account.

CREDIT CARDS TO AVOID

Many credit cards that are marketed to people with bad credit are expensive. These cards might not require a security deposit, but they impose an array of steep fees just for the privilege of carrying and using them. These can include application fees, processing fees, activation fees and monthly “maintenance” or “membership” fees, in addition to annual fees.

Add up those fees, and they can easily cost you more over the first couple of years than the deposit on a good secured credit card — and, unlike a security deposit, the fees you pay are money you’ll never get back. These cards can even cost more to carry than some of the best rewards credit cards on the market. Their ongoing interest rates tend to be high as well.

NerdWallet recommends you steer clear of products like these:

FIRST PREMIER BANK CREDIT CARD

The fees on the First Premier Bank Credit Card are truly eye-popping. For starters, there’s a “program fee” that applies before you even get your card. Then there are ongoing fees that depend on your credit limit. For example:

Fees in first yearFees second year and beyond
Credit limitProgram feeAnnualMaintenance*AnnualMaintenance*
$300$95$75$0$45$75
$400$95$100$0$45$75
$500$95$125$0$49$124.80
$600$75$79$70.20$49$99
$700$55$79$96$49$124.80
$1,000$25$79$96$49$124.80
*Maintenance fees are billed monthly: $6.25 per month = $75 per year; $10.40 per month = $124.80 per year

This convoluted fee structure owes its existence to a provision of federal law. Under the Credit Card Act of 2009, the fees on a credit card in the first year the account is open can’t exceed 25% of the credit limit. Processing fees are charged before you open the account, so they don’t count against the 25% cap. After the first year, there are no limits, so that’s when monthly maintenance fees kick in. As a result, you’ll pay between $120 and nearly $175 a year in fees for this card. On top of it all, the APR on this card was 36% as of June 2019 — one of the highest interest rates on any card.

HORIZON GOLD CARD

The banner across the top of this card’s website reads: “Bad Credit, No Credit? Low Score? NO PROBLEM.” In reality, though, there are multiple problems. The Horizon Gold card advertises an unsecured $500 credit limit, but you might have to read the website carefully to recognize that it’s simply a store card that you can use at just one place: the Horizon Outlet online mall. The “membership” fees required to use this card come out to nearly $300 a year, and there’s even a one-time $5 “issuance and account validation fee” just to get the card. This card’s issuer, Horizon Card Services, offers several other cards, all of which can be used only at the Horizon Outlet. They include the NetFirst Platinum card, the Freedom Gold, the Merit Platinum and the Group One Platinum.

CREDIT ONE CREDIT CARDS

Credit One Bank — not to be confused with Capital One — specializes in credit cards for those with less-than-great credit. Its offerings include the Cash Rewards Visa Card and the Platinum Visa for Rebuilding Credit, as well as the Official NASCAR Visa. The Credit One website is maddeningly vague about what kind of card you’ll end up with if you apply. For example, your annual fee could be anywhere from $0 to $75 in the first year and $0 to $99 after that. You may or not get a grace period. You might get rewards on all purchases, or only some, or none. There are also complicated, confusing rules on when your payments will post and when your available credit line is refreshed after making a payment. Our recommendation: Don’t bother trying to figure it out, and don’t bother applying.

SURGE CARD
MATRIX CARD

As of June 2019, these cards were charging a $125 annual fee in the first year for a minimum credit line of $500 — 25% of the credit limit, the legal maximum. In the second year, the annual fee drops to $96 — but you start paying $10 a month in maintenance fees, for total fees of $216 a year. The APR, meanwhile, was a whopping 29.99% as of June 2019. The Surge Card and Matrix Card are offered by Continental Finance. That company has several other cards with similarly jaunty names and the same janky terms: the Cerulean Card, the Reflex Card, the Fit Card and the Verve Card.

TOTAL VISA

Like the First Premier Bank Credit Card, the Total Visa starts laying on fees before you even open your account. If you apply and are approved, you must first pay an $89 processing fee to get your card. The annual fee in the first year is $75. In the second year and beyond, the annual fee drops to $48 — but you start paying a monthly processing fee of $6.25, which comes out to $75 a year. Put them together, and the Total Visa card will cost you $164 in the first year and $123 every year thereafter. To top it off, this card’s APR as of June 2019 was an eye-popping 34.99%. Not acceptable.

LAST RESORT OPTIONS

INDIGO PLATINUM MASTERCARD

According to the website for this card, the annual fee depends on a cardholder’s creditworthiness. It might be $0, it might be $59, or it might be $75 the first year and $99 every year thereafter. Which one will you pay? You have to apply to find out for sure. It’s safe to say, though, that people with bad credit are more likely to end up with a $75/$99 fee than a $0 fee. Even $59 is significantly more than you would pay in annual fees on a good secured card. The APR on the Indigo Platinum as of June 2019 was 24.90%. That’s high but within the typical range for a credit card for bad credit. You can do worse than this card — but you can also do much better.

MILESTONE GOLD MASTERCARD

The Milestone Gold is offered by Genesis Bankcard Services, the same company that’s behind the Indigo Platinum. It, too, has fees that depend on creditworthiness: $35 a year, $59 a year, or $75 in the first year and $99 in subsequent years. Adding a layer of confusion, the first year’s fee might be divided between an “account opening fee,” which you pay before the account goes live, and an “annual fee,” which you pay afterward. This may be a way to avoid running afoul of the 25% rule. The APR is the same as on the Indigo Platinum, and our general assessment is the same: not the worst card, but far from the best.

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How Do I Sell My Vehicle With Joint Ownership?

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A joint auto loan is when two borrowers have rights and responsibility to the same vehicle and loan. If you have a cosigner, then you, the primary borrower, have all the rights to the vehicle. Here’s what you need to know when you need to sell your car with two people responsible for the loan.

Selling a Joint-Owned Vehicle

Joint owners are typically spouses or life partners who combine their income to meet income requirements or get a larger loan amount. Both co-borrowers are responsible for paying the car loan and have 50/50 rights to the vehicle, so both their names are listed on the title.

Since your co-borrower has the same rights and obligations to the vehicle as you, you must get their permission to sell the car. In most cases, they also need to be present for the sale to sign the title. This may not always be the case, though, so it’s important to know how to read your car’s title.

If you have it, take a look at your vehicle’s title for the names listed on the back where you sign to transfer ownership. For example: let’s say your name is Jane and your co-borrower’s name is Joe. You’re likely to see either:

  • “Jane and Joe”
  • “Jane or Joe”
  • “Jane and/or Joe”

If you see “and/or” or the connector “or”, this typically means only one person needs to be present for the sale of the car. But if you see “and” this means both of you need to be present to transfer ownership – this is usually the case with joint ownership.

In all three cases, you still need the permission of the co-borrower to sell the vehicle even if they don’t have to be physically present to sign the title. If you sell it without the co-borrowers consent, it may be considered a crime because it’s their property, too. Moving forward, discuss the sale with your co-borrower to avoid potential legal trouble.

Selling a Car With a Cosigner

How Do I Sell My Car With Joint Ownership?If you have a cosigner on your car loan, then things become easier. A cosigner doesn’t have any rights to the vehicle and their name isn’t on the title. Their purpose is to help you get approved for the auto loan with their credit score, and by promising the lender to repay the loan if you’re unable to. A cosigner can’t take your vehicle, sell it, or stop you from selling it yourself.

However, it’s nice to let them know if you do decide to sell the car because the auto loan is listed on their credit reports. If you can, reach out to them about your plans to sell the vehicle. The car loan’s status impacts them and could affect their ability to take on new credit when it’s active.

If you sell the vehicle and the lien is successfully removed from the title, then you’re both in the clear.

Removing the Lien From a Vehicle’s Title

If you still have a loan on your car, then your number one priority is paying off your lender. Your lender is the lienholder, and you can’t sell a vehicle without removing them from the title – they own the car until you complete the loan. This typically means paying off the loan balance until naturally during the loan term, or getting enough cash to pay it all off at once from a sale.

When you’re selling a car with a loan, you want to get an offer for your vehicle that’s large enough to cover your loan balance and to remove the lien. If you don’t get a large enough offer, then you need to pay that difference out of pocket before you can sell the vehicle. Or, you may be able to roll over the remaining loan balance onto your next car loan if you’re trading it in for something else.

Looking to Upgrade Your Ride?

Many borrowers ask for help to get the car they need. If you need more income on your loan application to meet requirements, asking a spouse or life partner to chip in can do the trick. If you have a lower credit score, then a cosigner with good credit could help you meet credit score requirements.

But what if you want to go it alone on your next auto loan and your credit isn’t great? A subprime lender could be the answer. Here at Auto Credit Express, we’ve been connecting credit-challenged consumers to dealerships with bad credit resources for over two decades, and we want to help you too.

Fill out our free auto loan request form and we’ll look for a dealer in your local area that’s signed up with subprime lenders. These lenders assist borrowers with many unique credit circumstances to help them get the vehicle they need. Get started today!

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Fixed-rate student loan refinancing rates sink to new record low for the second straight week

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Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

The latest trends in interest rates for student loan refinancing from the Credible marketplace, updated weekly. (iStock)

Rates for well-qualified borrowers using the Credible marketplace to refinance student loans into 10-year fixed-rate loans hit another new record low during the week of May 3, 2021.

For borrowers with credit scores of 720 or higher who used the Credible marketplace to select a lender, during the week of May 3:

  • Rates on 10-year fixed-rate loans averaged 3.60%, down from 3.69% the week before and 4.32% a year ago. This marks another record low for 10-year fixed rate loans, besting the previous record of 3.69%, set last week.
  • Rates on 5-year variable-rate loans averaged 3.19%, down from 3.23% the week before and up from 3.04% a year ago. Variable-rate loans recorded a record low of 2.63% during the week of June 29, 2020.

Student loan refinancing weekly rate trends

If you’re curious about what kind of student loan refinance rates you may qualify for, you can use an online tool like Credible to compare options from different private lenders. Checking your rates won’t affect your credit score.

Current student loan refinancing rates by FICO score

To provide relief from the economic impacts of the COVID-19 pandemic, interest and payments on federal student loans have been suspended through at least Sept. 30, 2021. As long as that relief is in place, there’s little incentive to refinance federal student loans. But many borrowers with private student loans are taking advantage of the low interest rate environment to refinance their education debt at lower rates.

If you qualify to refinance your student loans, the interest rate you may be offered can depend on factors like your FICO score, the type of loan you’re seeking (fixed or variable rate), and the loan repayment term. 

The chart above shows that good credit can help you get a lower rate, and that rates tend to be higher on loans with fixed interest rates and longer repayment terms. Because each lender has its own method of evaluating borrowers, it’s a good idea to request rates from multiple lenders so you can compare your options. A student loan refinancing calculator can help you estimate how much you might save. 

If you want to refinance with bad credit, you may need to apply with a cosigner. Or, you can work on improving your credit before applying. Many lenders will allow children to refinance parent PLUS loans in their own name after graduation.

You can use Credible to compare rates from multiple private lenders at once without affecting your credit score.

How rates for student loan refinancing are determined

The rates private lenders charge to refinance student loans depend in part on the economy and interest rate environment, but also the loan term, the type of loan (fixed- or variable-rate), the borrower’s credit worthiness, and the lender’s operating costs and profit margin. 

About Credible

Credible is a multi-lender marketplace that empowers consumers to discover financial products that are the best fit for their unique circumstances. Credible’s integrations with leading lenders and credit bureaus allow consumers to quickly compare accurate, personalized loan options ― without putting their personal information at risk or affecting their credit score. The Credible marketplace provides an unrivaled customer experience, as reflected by over 4,300 positive Trustpilot reviews and a TrustScore of 4.7/5.

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Provident Financial calls time on doorstep lending business

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Provident Financial has confirmed plans to shut its 141-year-old doorstep lending arm, as its full-year results highlighted the strain the coronavirus pandemic and growing customer complaints have put on subprime lenders.

The Bradford-based company reported a pre-tax loss of £113.5m for 2020, compared with a £119m profit the previous year. The biggest drag was a £75m loss in its consumer credit division, which includes home credit.

Malcolm Le May, Provident chief executive, said: “In light of the changing industry and regulatory dynamics in the home credit sector, as well as shifting customer preferences, it is with deepest regret that we have decided to withdraw from the home credit market.”

Jason Wassell, chief executive of the Consumer Credit Trade Association, which represents alternative and high-cost lenders, said the decision showed that “the current regulatory framework does not work for the market, or its customers”.

“The result in this case is that access to credit will be reduced for hundreds of thousands of people.”

Provident built its name as a provider of home credit, or doorstep lending, which involves a team of local agents who regularly visit borrowers to collect repayments and discuss their products.

Proponents believed agents’ local expertise and personal relationships with borrowers allowed them to achieve better results than traditional bank lending to people with bad credit scores, but the approach has increasingly been superseded by digital models in recent years.

Provident’s business has also been affected by a series of self-inflicted and external difficulties. Its consumer credit division has been lossmaking since a botched effort to modernise the unit in 2017, which led to a pair of profit warnings and an emergency rights issue. More recently, its recovery has been hampered by an increase in customer complaints that prompted an investigation by the Financial Conduct Authority.

The complaints rise has been driven by professional claims management companies, echoing a broader trend across the subprime lending industry which has also affected companies such as Amigo, the guarantor lender. Executives also accuse the Financial Ombudsman Service, which adjudicates on customer complaints, of overstepping its mandate and encouraging huge volumes of complaints.

Provident said it would wind down or sell the consumer credit division, with either option expected to cost it about £100m. 

The move will see Provident exit the most controversial areas of high-cost credit to focus on what it describes as “mid-cost” lending through its Vanquis credit card business and Moneybarn vehicle finance arm. Vanquis and Moneybarn both remained profitable during 2020, despite more than a quarter of Moneybarn customers requesting payment holidays at the height of the pandemic.

The results were slightly better than average analyst forecasts, and the company said Vanquis and Moneybarn had both reported “improving trends” during the first quarter of 2021. Shares in Provident nonetheless dropped more than 10 per cent in early trading.

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