|Average FICO Score by Score Range|
|Range Description||Score||Percentage w/ Score|
What Happens When You Have Bad Credit?
Having bad credit means that you will have significantly less access to any type of credit — and any loans or credit cards you do qualify for will be much more expensive in terms of interest rates and fees. Other credit card features that are commonly offered to people with better credit, such as rewards and promotional APR offers, will likely not be available.
Credit scores also serve as a proxy for trustworthiness in our society and are sometimes used by employers, landlords, cell phone providers, and insurance companies to determine how much of a risk you represent. They may set their prices accordingly or decline to do business with you altogether.
How Can You Recover From Bad Credit?
Regardless of how bad your credit is, there is almost always a path to move things in a better direction. Building a positive credit history can take time, but it is certainly possible with responsible credit behavior and some patience. Simply avoiding the behaviors that cause bad credit can go a long way. But, it takes credit to build credit and the first order of business if you’re starting over is to get credit in your name and begin using it prudently.
If you already have credit accounts in your name, start by getting a copy of your credit report from each of the three major credit reporting agencies, Equifax, Experian, and TransUnion. You’re entitled to at least one free report from them every year through the official website annualcreditreport.com. It’s vitally important to review these reports to determine if there is any incorrect information or evidence of fraudulent activity. Those mistakes can be corrected by contacting your lenders and card issuers, and the positive impact on your credit score could show up quickly.
If you haven’t established credit yet, a credit card can be an excellent tool for doing that. If you are unable to obtain a regular credit card, a secured credit card could be your best option. Secured cards require you to deposit money in a bank account with the issuer, and typically limit your available credit to that amount. Once you’ve used a secured card responsibly for a period of time, the issuer may upgrade you to a regular card and return your security deposit.
Once you get a credit card, the best way to begin building a good credit score is to use the card, keep your credit utilization below 30%, and always pay your bill (in full, if possible) on or before the billing due date. It’s really a simple formula, but can be quite effective over time.
How Do You Know You Have Bad Credit?
The only way to know for sure whether you have bad credit is to check your credit score. There are free sources for checking your score online that only require the last four digits of your Social Security number. Checking won’t affect your credit.
What Kinds of Credit Cards Are Easiest to Get Approved For?
Card issuers never promise to approve anyone’s application, regardless of their credit score. That said, issuers have designed card products for different segments of the market and that includes the subprime market for people with bad (or no) credit. As mentioned above, secured cards can be a good place to start if you have some cash to deposit with the card issuer. These cards typically report to all three major credit bureaus, which can help you build a solid credit history.
Another option, which doesn’t require a security deposit, is to apply for one or more store credit cards from national retailers like Sears, Target, Kohl’s, or Best Buy. These types of cards can only be used with those respective retailers — unlike cards issued by banks that carry the Visa or Mastercard logo or that are issued directly through Discover or American Express, which can be used anywhere that accepts those credit cards. Store credit cards should only be considered a stepping stone to build credit, however, as they tend to have very small credit lines and charge high interest rates.
While there are numerous unsecured Visa and Mastercard options targeting people with bad credit, they can be a needlessly expensive option. These types of cards tend to have limited credit lines, very high interest rates, and numerous fees. The Credit CARD Act of 2009 sought to reign in these abusive products (sometimes referred to as “fee harvester” cards) by outlawing any annual fee that exceeds 25% of the credit line. However, issuers have gotten around that by exploiting a loophole that allows them to charge “processing” fees that are as bad or worse than the previously predatory annual fees. So, buyer beware with these types of subprime cards. As mentioned, secured cards, from major issuers like Discover or Citi, can be a much less expensive option until your credit score rises above the 600 mark and better, unsecured options become available to you.
What Should You Look for in a Credit Card for Bad Credit?
While credit cards designed for people with poor or bad credit generally don’t come with the same generous terms as those for lower-risk consumers, there are still some critical features to look for when reviewing options and choosing one to apply for.
- Credit bureau reporting. Look for a card that promises to report to all three credit bureaus (Equifax, Experian, and TransUnion). You can find out by checking the terms and conditions in the general card advertisement or application.
- Monthly credit scores. This has become a common feature that’s provided through billing statements or on the issuer’s website. Being able to see your score rise over time can be invaluable in terms of feedback on how you’re doing and encouragement to keep at it.
- No annual fee (or a very low one). There are many cards available that don’t charge you an annual fee, though a security deposit is generally required for secured credit cards.
- An automatic way to move from a secured card to an unsecured one. Many secured card issuers will automatically review your account after a period of on-time payments to determine if you’re eligible for an upgrade to an unsecured card with friendlier terms.
Can You Transfer Balances With Bad Credit?
Unfortunately, few, if any, credit cards designed for people with bad credit allow balance transfers, especially at interest rates that would prove advantageous. If you find one that does, it might make sense to transfer your balance if your current card is charging penalty rates of 36%, for example, and you can move the funds to a card that charges a rate in the mid-20% range. While that rate would still be high, it could save you money in interest charges (not accounting for likely transfer fees of 5%), if the new issuer can provide a large enough credit line to absorb the transfer. Before you consider a balance transfer, however, it would be worth contacting your current card issuer to see if you can simply negotiate a lower rate.
How Long Does It Take to Rebuild Credit?
Correcting errors on your credit report can pay off within a matter of months. Other credit behaviors, like paying your bills on time, can take longer to improve your score. What’s more, some aspects of your credit history, such as any bankruptcies or charge-offs, can take up to a decade to disappear from your report. According to Experian, the following actions can have an impact on credit scores in these general time frames.
|1-3 Months||Corrected credit report mistakes|
Repaying outstanding credit card and loan balances
|1-2 Years||Hard credit inquiries (full credit checks following application for new credit)|
|7-10 Years||Late payments|
Charged off accounts
Chapter 7 and 13 bankruptcy
Source: Experian Information Solutions
About Our List of Credit Cards for Bad Credit
To arrive at our list of best credit cards for bad credit we filtered our list of nearly 300 credit cards for cards that consider applications from people with credit scores below 600. From this list we then objectively chose the best cards in each subcategory based on their star ratings and feature quality.
In order to track and assess the U.S. domestic credit card market, we gather scores of data points on more than 300 cards. This data is collected manually from both card-issuer websites and publicly available sources.
To ensure our information is as up-to-date as possible, we deploy automated tools that monitor changes in such key data as annual percentage rates, introductory rates, introductory periods, bonus offers, rewards earnings rates, fees and card benefits. We then rapidly make any needed updates to our card listings, reviews, and recommendations to ensure that readers have the most reliable information and advice.
Once we collect credit card data we organize it in our database according to features, which roll up into feature sets (such as rewards, interest, fees, benefits and Security/Customer Service). Each individual card feature is assigned a star rating score on a 1 to 5 scale using a formula. For instance, for a one-time bonus score we would use a formula like (if bonus is $500 or greater, then assign a score of 5; if $300-$499 then 4, and so forth). Weighting of scores. Once all of each card’s features have received a score we apply a weighting factor to each feature to arrive at a weighted average score for each card (according to the general category in which it resides, such as travel rewards).
This weighting process allows us to assign significantly more emphasis to the attributes important to a particular category, and downplay those that are less relevant to it. That allows us to objectively identify cards that stand out in their category, and why they do. For example, we apply significantly higher weight to such travel-specific features as airport lounge access or primary rental car insurance than we do to attributes such as interest rates or fees that might be more strongly considered for other categories, such as balance-transfer cards.
Another critical factor we consider when rating and ranking travel cards and other types of rewards cards are the cards’ effective earnings rates. We first calculate the average value of points or miles for all the rewards cards in our database, a painstaking process that entails collecting all airline fare data by carrier across scores of popular domestic and international city-pairs along with per-night hotel charges at all major hotel brands.
The required points and miles for air travel or hotel stays from the various reward programs is then used to calculate an effective earnings rate for each card. That allows our readers to make the most informed choices. By putting a card’s large one-time bonus or earnings rates into context across many dimensions and card features, they can more readily weigh the card’s benefits relative to its costs. Uncovering the true but often opaque redemption value of rewards points or miles is, we feel, the only reliable way to make cogent choices among competing value-based cards.
Card Features We Score
As mentioned in our methodology explanation, we place significant weight on certain travel-related features in determining our ratings for each card. Specifically, we place over 50% of our overall assessment score on the combination of the following factors:
- Maximum value of any one-time bonus, whether in points or miles.
- Initial card spending required to earn any bonus.
- Redemption value of the bonus miles or points.
- Global card acceptance, as detailed by the four card networks (Visa, Mastercard, American Express and Discover).
- Options to redeem points or miles with travel partners, both airline and hotel.
Another consideration are the cards’ coverage, if any, in these travel-related areas:
- Car-rental collision insurance, whether primary or secondary.
- Travel accident insurance.
- Lost or delayed luggage insurance.
- Insurance for trip cancellation, interruption, or delay.
- Cell phone loss or damage.
- Roadside assistance and towing.
- Emergency travel medical/dental benefits.
General, non-travel related features that we consider and score include:
- Interest rates, including both introductory and regular APRs for purchases and balance transfers.
- Fees, including those for annual membership, late payments, cash advances and foreign transactions.
- Security/customer service features.
- Other non-travel benefits, such as free credit scores, ID theft protection and contactless payment capability.
How We Reach Our Final Assessments
We rely mostly on the objective scores created by our rating algorithms to determine which card is chosen as the best travel rewards credit card, as well as the ones deemed best for one-time bonuses and as co-branded airline and hotel choices.
However, we may make some adjustments from time to time, to both features and weightings that could affect rankings, which can be influenced by subjective input from our credit card experts. Any potential modifications will be consistent with Investopedia’s belief that consumers are best served by travel cards that:
- Provide superior value in earning awards travel.
- Charge reasonable interest rates in the event that balances are carried month to month.
- Charge fewer and/or more reasonable fees.
- Provide solid customer service, based on the number and quality of customer service features
- Have helpful and protective security features.
Is There a Difference Between No Credit and Bad Credit?
The short answer is yes, and understanding the difference could be instrumental in getting better credit.
No credit and bad credit often get grouped together. It’s understandable why, as they both sound similar enough. And if you have either, the next step forward is to focus on improving your credit.
The two situations aren’t the same, though. It’s important to know the difference, because the right way to build your credit often depends on whether you have no credit history or bad credit.
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The difference between no credit and bad credit
Having no credit means that there’s not enough information on your credit file to calculate a credit score for you. It’s also known as being credit invisible. Sadly, this is an issue that affects millions of Americans.
There aren’t any problems on your credit file; the credit bureaus just don’t have enough data on you. That means when a lender or any other third party checks your credit, there’s nothing to go on.
Meanwhile, “bad credit” is a common term used to describe a low credit score. That low score is because of negative items on your credit file, such as not paying your credit card bill.
When you have no credit, the solution is to build your credit. When you have a low credit score, the solution is to rebuild your credit. Now, let’s look at how you can do each one.
How to build credit for the first time
Here’s the simplest way to build credit:
- Open a credit card.
- Use the credit card for at least one purchase per month.
- Always pay your credit card bill on time and in full.
It’s that easy; that’s all you need to do to get a good credit score. When you use a credit card and pay the bill on time, you establish a positive payment history. That’s the biggest credit scoring criteria.
The tricky part when you have no credit is finding a credit card you can qualify for. Secured credit cards are one of the most common options for consumers in this situation. You pay a security deposit for this type of card, so it’s possible to open a secured card even if you have no credit.
If you’re in college, credit cards for students are available. These are often an option for applicants without any credit history.
How to rebuild a low credit score
It’s a little more complicated to rebuild your credit. First, you need to find out what negative items are affecting your credit score. Here’s how to start:
- Use an online credit score tool to check your score and learn about any items damaging your credit. If you have a credit card, there may be a credit score tool in your online account. If not, there are plenty of free ways to get your credit score.
- Request your credit report from the three consumer credit bureaus (Equifax, Experian, and TransUnion). You can pull a free annual credit report from each bureau, and through April 2022, you can get free weekly credit reports. Your credit report will show you exactly what’s affecting your credit.
Once you know what’s affecting your credit, you can work on correcting it. Below are a few of the most common issues and how to fix them.
Problems with your payment history
This includes anything related to not paying a bill on time, from late payments to having accounts go to collections.
The first step is catching up on your payments. If you can’t pay in full, contact your creditors and see if you can set up a payment plan with them. They may be willing to work with you if that means you’ll be making regular payments.
Next is rebuilding your payment history. The easiest option is to use a credit card at least once per month and pay in full by the due date. Why do you need to use a credit card? Credit card companies report on-time payments to the credit bureaus, which helps your credit score. With other types of bills, your on-time payments typically don’t get reported to the credit bureaus. That means you may not be able to improve your payment history with rent, utilities, or other monthly bills.
If you already have credit cards, you can continue using them to rebuild your payment history. If you don’t, look for secured credit cards and apply for one you like.
Using too much of your credit
A big factor in your credit score is your credit utilization ratio — your credit card balances divided by your credit limits. If this number gets too high, it can lower your credit score. The standard recommendation is a credit utilization ratio of under 30%.
Let’s say you have one credit card with a $4,000 balance and a $5,000 credit limit. That would put your credit utilization at 80% ($4,000 divided by $5,000 is 80%), a very high number that would decrease your credit score.
Fortunately, only your current credit utilization matters. Once you pay down your credit card balance, your credit score will bounce back.
Errors on your credit history
A low credit score may be due to an error and not any action on your part. This is why it’s so important to pull your credit reports from each credit bureau. By reviewing those, you can see if there are any mistakes.
If there are errors on your credit report, you can go to the credit bureau’s website to dispute them online and get them removed.
A low credit score and a nonexistent credit score are both things you can change. After you determine exactly what the issue is, you’ll be able to choose the best solution to fix it.
‘There is no new normal’: Worcester small business owner pivoted during COVID-19 and expects only more change after pandemic
It took about eight minutes for the bank to reject Natalie Rodriguez’s application for a loan through the Small Business Administration.
Rodriguez opened Nuestra, a Puerto Rican inspired restaurant in Worcester, in January of 2020. When COVID-19 arrived months later she discovered Nuestra wasn’t eligible for the federal or state funding that thousands of other establishments received.
To qualify, restaurants were required to show payroll and salary for years before 2020. Those figures didn’t exist for a restaurant that weren’t open in 2019.
“[I was] determined and knew that ‘no’ is not an OK answer,” Rodriguez said. “A door may close but you may need to kick down another door.”
Rodriguez then applied for conventional loans only to be led to more closed doors. Less than 10 minutes after applying for an Economic Injury Disaster Loan, she received notice that her poor credit score resulted in her application being denied.
Rodriguez used the dead end with the SBA to create a new path for herself and Nuestra.
She not only learned how to improve her credit but wanted to ensure others didn’t have to follow her journey as an entrepreneur.
Rodriguez extended the “Nuestra” brand to include financial advising. She started Nuestra Financial in April of 2020.
“Now I’m helping others. I’ve been able to restore my credit,” Rodriguez said. “I’ve been able to help others restore their credit and be able to help them make a business themselves if they so choose. I’ve been able to survive.”
Without grants and other funding, Rodriguez managed to keep her restaurant open through funds generated from Nuestra Financial.
“I was very quiet about it in the beginning. I didn’t want people to be like, ‘Oh look at this girl, she just opened a restaurant in the middle of a pandemic,’ and talk smack,” Rodriguez said. “About a month or two later, a light bulb hit and I was like, nobody pays my bills but me. I needed to mind my own business and not worry about what other people thought.”
In creating Nuestra Financial, Rodriguez said she’s helped Worcester residents restore their credit and purchase new vehicles and homes.
Rodriguez said financial literacy is rarely taught to children in school and wasn’t something she learned. When a situation arises like a rejection notice for an economic disaster loan, many don’t know how to respond or where to find answers.
Rodriguez said she’s helped young and old people, along with those who have bad credit or no credit.
“We lack the confidence, including myself, because we weren’t taught,” Rodriguez said. “So if you don’t know something, you weren’t taught, you’re not going to be confident about it.”
Coming out of the pandemic, Rodriguez remains confident about both her businesses. Nuestra, the restaurant, while closed for daily service continues to provide catering services. Rodriguez is still preparing what the future holds for the restaurant but plans to announce an update soon.
As masks start to become less a part of daily routines, Rodriguez, as a small business owner, doesn’t envision many differences from this year to last.
So many aspects of life remain uncertain from rising food costs to a potential third booster for vaccines and whether the country will ever reach herd immunity for COVID-19.
The pandemic arrived with Rodriguez immediately pivoting. As it approaches its potential end, Rodriguez will continue to do what helped her to navigate it.
“I feel like there is no new normal just yet,” Rodriguez said. “I think we’re all just trying to adjust and pivot at the same time and getting creative. I think it’s where we all are.”
Columbus Mattress Wholesale moves to newer, larger Gahanna store
More than four years back, Cathryn Clark’s boyfriend, Christopher Robbins, was on the hunt for a new mattress. He just couldn’t find one at an affordable price.
Clark, 29, and Robbins, 34, who are now engaged, were living in Franklinton, where they still live today.
They had no experience owning or operating a small business; Robbins worked as a retail assistant for SAS Retail Services while Clark worked as the communications director for two Methodist churches.
But in 2017, Robbins, with Clark at his side, took the leap and opened Columbus Mattress Wholesale on the West Side, with the goal of helping low-income consumers secure mattresses and other bedtime products.
“We really wanted to bring a store to people that, you know, they weren’t paying an arm and leg, but they still could get a good night’s sleep,” Clark said.
Customers at Columbus Mattress Wholesale can pay cash or credit, for example, but the business also works with financing companies that serve people without credit scores, with bad credit or who are lower income.
Last month, the business made a big move. It expanded from its original location on Harrisburg Pike to a store double the size at 435 Agler Road in Gahanna.
Clark said she and Robbins saw a need in the broader area, with many of their customers coming from outside the Hilltop, such as Linden.
Nestled between Dollar Tree and the Ohio BMV in Gahanna, the new storefront opened Memorial Day weekend and sells mattresses, bed bases, bed frames and pillows. Mattress prices range from under $100 to more than $1,000, depending on the size and brand, which includes some well-known names such as Serta, Beautyrest and Casper.
Clark said while she and Robbins originally sold solely Ohio-based brands, they’ve branched out to national brands as business has grown.
Columbus Mattress Wholesale also offers free same-day delivery on most orders from customers living in Columbus.
Clark does a little bit of everything for the business, from running communications, to working on the sales floor, to managing the sales team, to ordering what they sell.
She said a big mission for herself and Robbins, beyond doing business, is aiding the community.
“We’ve seen a lot of people struggle,” Clark said.
Clark said she and Robbins work to mentor other people who are hoping to open or currently own a small business. She added that the store starts employees at $17 per hour.
She and Robbins haven’t decided yet what they will do with the original location — which is currently closed — but said they might shift it into an accessory store.
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