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Having a low credit score makes it harder to get approved for a new credit card and other types of loans, and it means that when you do get approved for, say, a mortgage, you’ll generally get less-favorable terms like the highest variable interest rates.
A bad credit score is defined as anything below 580, according to the FICO scoring model, and anything below 601 according to VantageScore. If you currently find yourself in this credit score range, you probably won’t get approved for popular rewards cards like the Chase Sapphire Preferred® Card, but you do have some credit card options. Secured credit cards are particularly easy to get approved for, because you put up a cash deposit as collateral to get started, and there are also non-secured cards tailored to those looking to repair or build their credit.
Using a card responsibly will help boost your credit over time, since keeping your credit utilization low and making on-time payments are the two biggest factors that determine your credit score. Once you have your finances on track and your credit score keeps climbing, it’s only a matter of time before you can get a rewards credit card offering bonus points and other enticing perks.
The best credit cards for bad credit
- Best secured card with rewards: Discover it® Secured
- Best secured card with purchase and travel protection: Capital One® Secured Mastercard®
- If you can qualify for a non-secured credit card: Capital One® Platinum Credit Card
- Best for building credit: Petal Visa
- For students building credit: Discover it® Student Cash Back
- A secured credit card for businesses: Wells Fargo Business Secured Credit Card
Best secured card with rewards: Discover it® Secured
The Discover it® Secured is easily the top secured credit card on the market today, because not only is there no annual fee, but you also get the opportunity to earn rewards. You’ll need to put down a cash deposit to get started, and you’ll secure a line of credit equal to that amount that you can use to begin building a responsible credit history. If you use your card responsibly, you can also get your deposit back when you close or upgrade your account in good standing.
In terms of rewards, the Discover it® Secured lets you rack up 2% cash back on up to $1,000 spent at gas stations and restaurants each quarter you activate (then 1%), plus 1% back on all other purchases. Even better, Discover will double all the rewards you earn after the first year.
The Discover it® Secured also gives you a free FICO score on your monthly credit card bill, and you can use this information to monitor your score as you improve your credit over time.
26.99% variable APR
Secured card with purchase and travel protection: Capital One Secured Mastercard
The Capital One Secured Mastercard is another popular secured credit card that doesn’t charge an annual fee. This card starts you out with a low line of credit (possibly as low as $200) when you make the minimum deposit amount of $49, $99, or $200 depending on your application details.
From there, you can begin building good credit by using the card for small purchases and paying your bill on time each month. Capital One will consider you for a higher line of credit after you’ve paid your credit card bill early or on time for six consecutive months.
You can pick your payment due date with the Capital One Secured Mastercard, and you won’t pay foreign transaction fees if you use it for purchases made outside the United States. This card also comes with travel accident insurance and extended warranties on eligible items that already come with a manufacturer’s warranty.
26.99% variable APR
If your credit’s on the higher side of low: Capital One Platinum Card
Unlike most other card issuers, Capital One indicates what type of credit score you need to get approved for each of its cards. The Capital One Platinum Card is for “average credit,” which Capital One defines as having defaulted on a loan in the past five years or “limited credit history” (defined as having a credit card or other credit for less than three years).
This card doesn’t offer any rewards, but it is an unsecured credit card, meaning you don’t have to put down a cash deposit as collateral. There’s also no annual fee, no foreign transaction fees, travel accident insurance, and extended warranties.
You may have to start out with a relatively low line of credit, but Capital One promises to reevaluate your credit line after you’ve made six on-time monthly payments.
0% intro APR for 6 months from date of account opening
For students building credit: Discover it® Student Cash Back
The Discover it® Student Cash Back is specifically geared to students with limited credit history, so it may be considerably easier to qualify for when compared to other unsecured credit cards. You won’t pay an annual fee for this card, and you won’t pay a late fee on your first late payment.
You can also earn rewards with the Discover it® Student Cash Back by enrolling each quarter to earn 5% back on up to $1,500 spent in quarterly rotating bonus categories (then 1%), and 1% back on all other purchases. Like with its other cash-back credit cards, Discover will also match all the rewards you earn the first year.
As a bonus, you can qualify for a $20 statement credit each year you maintain a GPA of 3.0 or higher (for up to five years).
12.99% – 29.49% variable APR
Best for building credit: Petal Visa
Unfortunately, this card is currently only available to those with an offer code, but you can add your name to the list here to be notified when you’re able to apply.
The Petal Visa was designed for consumers with limited credit histories who need help building credit from scratch. This credit card comes with no annual fee and no hidden fees, yet it’s a Visa credit card that can be used anywhere Visa is accepted worldwide. Not only that, but you may be able to qualify for a credit limit up to $10,000, and you’ll earn rewards on your spending.
Cash back is initially offered at 1%, but you’ll graduate to earning 1.25% back after six on-time payments then 1.5% back once you’ve made 12 on-time payments on your card. This credit card also works in conjunction with a handy app that helps you track your spending and set a budget for the month, and usage of the app is also free.
A secured credit card for businesses: Wells Fargo Business Secured Credit Card
Business owners who want to improve bad credit may need to get started with a secured credit card for business, and the Wells Fargo Business Secured Credit Card is a good option. This option only requires a $25 annual fee per card, yet you can qualify for a line of credit between $500 and $25,000.
You’ll also earn 1.5% cash back for each dollar you spend, or you can decide to earn rewards “points” instead and redeem them for gift cards, merchandise, and flights. You’ll earn 1 point on every dollar spent and receive 1,000 bonus points when your company spends $1,000 or more during a monthly billing period. Cash back is received automatically as a deposit into an eligible checking or savings account each quarter.
This card won’t charge any foreign transaction fees, and you can log in for business spending reports from Wells Fargo.
Frequently asked questions
If your credit is in poor shape, picking up a credit card can help if you use it to your advantage. These questions and answers can help you get approved for a credit card for bad credit, then use it to boost your credit score over time.
How do I know if I have bad credit?
According to myFICO.com, poor credit is typically considered any FICO score below 580. Meanwhile, “fair credit” is considered any FICO score between 580 and 669.
The best way to find out if you have bad credit is to check your credit score for free online. Fortunately, a variety of platforms let you get a free look at your credit score, including Credit Sesame and Credit Karma.
How can a credit card help me build credit?
Credit cards help you build credit by reporting your credit movements to the three credit bureaus. To build credit with a credit card, all you have to do is use your card for purchases you can afford to pay off. From there, pay your credit card bill early or on time each month. Over time, your positive credit usage will help boost your score.
What is a secured credit card?
A secured credit card is a type of credit card that requires a cash deposit as collateral. The cash deposit you put down is typically equal or close to the line of credit you qualify for, meaning you’ll get a $500 line of credit if you put down $500 in cash to get started. While putting down collateral may not seem ideal, secured credit cards are considerably easier to get approved for when you have bad credit or a limited credit history.
How do I avoid credit card interest?
To avoid paying interest on purchases made with a credit card, you need to pay your credit card statement balance in full each month. You’ll only be charged interest on balances you carry from one month to the next, so you should strive to avoid this.
Which credit card fees should I watch out for?
Try to pick a credit card that doesn’t charge an annual fee. Other credit card fees to watch out for include application fees, late fees, balance transfer fees, cash advance fees, and over-the-limit fees.
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@example.com 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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