Your credit score is more than just a three-digit number; it’s a measure of your financial health. When you apply for loans or lines of credit, lenders use your credit score, along with other factors, to decide whether to approve you and also what interest rates to charge. Having bad credit can make getting a credit card more difficult, but it’s not impossible if you know how to approach it.
- Bad credit can be the result of a past credit mistake, but it can also be caused by fraud or identity theft.
- Having a low credit score may limit your options when applying for credit cards.
- It may be necessary to choose a secured credit card if you can’t get approved for a traditional credit card.
- Before agreeing to any credit card offer, read the terms carefully so you understand the interest rates, fees, and other variables.
What Is Bad Credit?
Credit scores operate on a range. Where you land on that range will determine whether you’re considered to have excellent credit, good credit, or bad credit. FICO credit scores, which are widely used by lenders, range from 300 to 850. A score of 800 to 850 is considered exceptional, while a score ranging from 300 to 579 is considered poor. Approximately 16% of individuals with a credit score are in the poor range.
A bad credit score can be caused by different things. With FICO scores, your payment history accounts for the largest part of the calculation. Having one or more late or missed payments on your credit history could damage your score significantly.
Bad credit can also be related to more serious situations, such as filing for bankruptcy or a foreclosure proceeding. Both can cause you to lose significant points, and that negative information can stay on your credit history for up to seven years or 10 years in the case of certain bankruptcy filings.
In other instances, bad credit may be no fault of your own. If someone steals your identity, for example, they may rack up bills in your name and you might not realize it until you start getting notices from debt collectors. Credit bureaus can also make mistakes in reporting your account information, which can cost you credit score points.
You can get free copies of your credit report from each of the three major credit reporting bureaus through AnnualCreditReport.com. Check your reports carefully for fraudulent activity or errors and dispute any inaccuracies you find.
How to Get a Credit Card With Bad Credit
If you have a less than ideal score and want to get a credit card in your name to build or rebuild credit, there are a few things to keep in mind.
First, ask yourself what kind of credit card you’re interested in. For example, are you looking for a card that offers rewards on purchases or one with a low annual percentage rate?
Next, consider what kinds of cards you’re most likely to qualify for. Many card issuers specify what type of credit is needed to get approved for certain cards. For instance, you can find cards designated for people with excellent credit, good credit, etc. If you know your credit score is in the bad credit range, it’s important to look for cards that are a good fit so you don’t waste your time applying for ones you won’t qualify for.
Applying for new credit can trim a few points off your credit score. If you already have bad credit, it’s important to avoid overdoing it on credit applications to minimize credit score dings.
Consider a Secured Credit Card
Secured credit cards require a cash deposit, which typically doubles as your credit line. If you can come up with the cash for the deposit (often $200 or more), this may be the easiest way to get a credit card despite having bad credit.
Secured cards are designed for people who have limited or no credit history or bad credit that they’re trying to rebuild. Here’s a quick look at their pros and cons:
May be easier to get approved for a secured card if you have bad credit
Some secured cards allow you to earn rewards on purchases
Secured cards can help you build a good credit history with responsible use
Try a Retail Store Card
Retail store cards are issued for one specific store or family of stores. You can use these cards to make purchases at those stores, and some offer rewards, discounts, and other incentives for using them.
Unlike secured cards, you won’t need to make a cash deposit to open a retail store card, which is a plus. Here’s more on the advantages and disadvantages of applying for a retail store card when you have bad credit:
Generally easy to get approved for
Some retail cards offer a substantial discount on your first purchase and/or rewards for future purchases
Retail store cards can help you build credit when used responsibly
Consider Becoming an Authorized User
A third option for getting a credit card if you have bad credit is to ask someone else to add you to one of their credit cards as an authorized user. Being an authorized user means you can use the card to make purchases, but you don’t have to apply for it using your name or credit history.
Authorized user status can reflect positively on your credit history if the primary cardholder pays their bill on time and keeps credit utilization low.
This can be an easy way to get a credit card without having to apply for one
You’re not responsible for any debt associated with the card
You can make purchases and potentially earn rewards
Being an authorized user doesn’t carry as much credit-building power as having a credit card in your own name
If the primary cardholder pays late or defaults, that can reflect negatively on your credit history
Adopt Positive Habits to Build Credit
Once you get a credit card—whether it’s a secured card, a retail card, or you’re an authorized user on someone else’s card—it’s important to maintain a credit-building mindset when you use it.
That means doing things that will positively affect your credit history, such as:
- Paying your bills on time each month
- Keeping your credit utilization low
- Only applying for new credit when you truly need it
- Keeping older credit accounts open
All of these can help you can improve your credit score. As your score rises, you can look into other options for borrowing and building credit, such as unsecured credit cards and personal loans.
The Bottom Line
Credit cards can be a useful tool for building credit, and they’re also convenient for making purchases and earning rewards. If you have bad credit, opening a credit card account could be an easy way to get your score and credit rating back on track. Just be sure to pay attention to the card’s interest rate and fees so you know what you’re paying to use it.
3 credit habits that you need to break
Are you using your credit card responsibly? Or do you have a few bad habits? Take a look at three common bad habits that people have with their credit cards and the best ways to stop doing them.
Habit 1: Pushing the limits
The first bad credit habit is pushing your outstanding balance close to its limit. What’s wrong with that? The first problem is that you’re giving yourself a larger debt load to contend with every month — one that accumulates interest the longer that it sits. It could be very difficult to pay down, and it could even lead to you maxing out your card.
The second problem with this habit is that it leaves you vulnerable to emergencies. You’ve taken up the majority of your available credit, so you can’t depend on it for unexpected payments. What if you need to pay for an urgent repair and there’s not enough room on your card? What can you do?
To avoid that difficult situation, you could apply for an online loan to help you cover the emergency costs and move forward. See how you can apply for an online loan in Ohio when you have no other safety nets to fall back on. It’s important that you only turn to this solution when you’re dealing with an emergency. It’s not for everyday purchases or small budgeting mistakes.
In the meantime, you should try your best to keep your credit utilization at 30% or lower — this means that your balance should be below the halfway point of your limit.
Habit 2: Paying the minimum
You pay your credit card bills on time, but you only give the minimum payment. While this habit can stop you from racking up late fees and penalties, it can still get you into hot water if you’re not careful.
Only paying the minimum for your bill will make it very difficult for you to whittle down the balance, especially when you’re continuing to charge expenses on your card. You’re only taking $20-$25 off a growing pile.
So, what can you do? If you’re paying this amount by choice, stop it — you’re only making things harder for yourself down the line. If you’re paying this amount because you don’t have any more funds, look at your budget to see whether you can cut your monthly costs to get more savings and use them to tackle your balance.
Habit 3: Using it for every single expense
You don’t need to put every single expense on your credit card. Your morning coffee? Your afternoon snack? Putting these small, everyday expenses on your card is a habit that can make your balance climb quickly.
You also don’t want to put some very important expenses on there, like mortgage payments. For one, these payments are large and will take up a significant amount of your credit. Secondly, if you need to use a credit card to make these payments on time, you need to reinvestigate your budget to see whether you can actually afford your living space.
So, what you should you do? Use a debit card, cash or checks to pay for the items above. Only put expenses on your credit card that you’re positive you can pay off in a reasonable timeframe.
Don’t let these bad habits drag you down and get you into financial trouble. Break them now, before it’s too late.
Free credit reports have been extended; here’s why it’s important to check yours regularly
Typically, you’d be able to check your credit report — at least for free — just once annually through each of the three major credit reporting agencies. But thanks to the coronavirus pandemic, credit reports are now more accessible than ever.
Credit reporting companies Equifax, Experian and TransUnion are all offering free credit reports weekly through April 20, 2022.
The move means better insight into your financial health during what, for most, is an economically challenging time. According to experts, it might also be a time that’s ripe for at-risk personal information and identity theft, too — even more reason consumers should be checking their credit on the regular.
Have you checked your annual credit lately? If not, here’s what you need to know about these free nationwide credit reports and how to get them. If you’re not sure where you fit on the credit score spectrum, you may want to start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
Free credit reports for all?
The nation’s three credit bureaus initially started offering free weekly credit reporting last year, just after the pandemic began. In early March, they announced they’d extended the offer for another year, this time through April 20, 2022.
To request your free credit reports and access copies, you can go to AnnualCreditReport.com and provide some basic information to verify your identity (things like your date of birth, Social Security Number, and address).
Once your report is ready, you should see a detailed list of all open and closed accounts in your name, your payment history, recent credit activity and more.
Protect yourself from identity theft
There are many reasons why checking your credit activity is important, but chief among them? That’d be the prevalence of data breaches in today’s world — not to mention the risk of identity theft they come with.
“In the past, it was perfectly acceptable for people to check their credit history once a year, but now with security breaches happening on a regular basis, consumers should be monitoring their credit more closely than ever,” said Clint Lotz, president and founder of TrackStar.ai, a predictive credit technology firm.
Lotz said the Equifax breach — which exposed over 147 million Americans’ personal information in mid-July 2017 — is the perfect example of why watching your credit report is important as far as identity theft protection goes. The pandemic, he said, adds an extra layer of risk to things.
“It took them [Equifax] months before they even realized they had been hacked, and considering that they hold files on hundreds of millions of Americans, it’s fair to say that many identities were stolen by the time they caught up to it,” Lotz said. “With many of us worrying about very serious issues not related to our credit, it’s a prime time for that stolen data to be put to work by bad actors in slow, methodical ways and in the hopes that nobody notices it.”
More reasons to check your credit
Checking your credit health often isn’t just good for detecting fraud alerts and to protect your identity, though. You can also monitor your report for errors — things like inaccurately reported late payments, for example — and then dispute those with the credit bureau.
If the error gets corrected, it could improve your credit score and make a jump from bad credit to a FICO score that’s more favorable. Not sure of your credit score? Head to Credible to check your score without negatively impacting it.
You can also use your credit reports and scores to monitor your financial habits — like the timeliness of your payments or how much debt you have left to pay off. Both of these factors can play a big role in your score, as well as how likely you are to get approved for loans, credit cards and other items.
“If you’re taking out a loan, getting insurance or even applying for a new job, checking your credit will allow you to see an overview of what would be seen by others looking at your credit,” said Leslie Tayne, a debt relief attorney with the Tayne Law Group. “Staying up-to-date on your credit reports and information allows you to know exactly where you need to improve.”
Want to be sure your credit is stellar before applying for a loan or insurance policy? Consider Credible’s partner product Experian Boost, which lets you use positive payment history on utilities, streaming and other bills to improve your credit score.
Set up a monitoring service, too
Though checking your credit reports manually is smart, you should also consider signing up for a credit monitoring service. These consumer financial services check your credit information and score regularly and alert you of any changes.
If you’re interested in monitoring your credit or improving your score, head to Credible and learn more about how Experian can help. You can also use Experian Boost to get credit for on-time bill payments.
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Do Personal Loans Have Penalty APRs?
Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.
The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”
Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.
Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.
Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.
Other common personal loan fees include:
- Interest: The monthly charge you pay to borrow money
- Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
- Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
- Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)
As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.
None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.
Find the best personal loans
For rates and fees of the Blue Cash Preferred® Card from American Express, click here.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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