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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
– No Annual Fee, earn cash back, and build your credit with responsible use.
– It’s a real credit card. You can build a credit history with the three major credit bureaus. Generally, debit and prepaid cards can’t help you build a credit history.
– Establish your credit line with your tax return by providing a refundable security deposit of at least $200 after being approved. Bank information must be provided when submitting your deposit.
– Automatic reviews starting at 8 months to see if we can transition you to an unsecured line of credit and return your deposit.
– Earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically.
– Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score
– Intro Offer: We automatically match all the cash back you’ve earned at the end of your first year.
– Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
Offers cash-back rewards, which isn’t a given for secured credit cards
Discover matches cash back after your first account year
Other secured cards let you start with lower minimum security deposits
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.
Offers you an opportunity to build or rebuild your credit with responsible use
$49, $99 or $200 refundable minimum security deposit
Make the minimum required security deposit and you’ll get an initial credit line of $200
Get access to a higher credit line after making your first 5 monthly payments on time
Pick your own monthly due date and payment method
Add an authorized user to your account, and track spending by user
Minimum deposit ($49) is lower than with some other secured cards
You can access a higher credit line after making your first five monthly payments on time
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
Access to a higher credit line with Credit Steps after making your first 5 monthly payments on time
Unlimited access to your credit score and tools to help you monitor your credit profile with CreditWise from Capital One®
Add an authorized user to your account, and track spending by user
Personalized email or text reminders to help you stay on top of your account
Access to a higher credit line after you make your first five monthly payments on time
No annual fee
No extra benefits and no rewards
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
The information related to the Discover it® Student Cash Back has been collected by Business Insider and has not been reviewed by the issuer.
Discover will match all the cash back you’ve earned at the end of your first year, automatically. There’s no signing up. And no limit to how much is matched.
Earn 5% cash back on everyday purchases at different places each quarter like grocery stores, restaurants, gas stations, select rideshares and online shopping, up to the quarterly maximum when you activate. 1% after that.
$20 statement credit each school year your GPA is 3.0 or higher for up to the next 5 years.
Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score, number of recent inquiries and more.
Freeze It® on/off switch for your account that prevents new purchases, cash advances & balance transfers in seconds.
Get an alert if we find your Social Security number on any of thousands of Dark Web sites.
Earns 5% cash back on rotating bonus categories
$20 statement credit each year your GPA is 3.0 or higher
Discover matches your cash back after the first year
Not the most rewarding cash-back card for non-bonus purchases
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
Earn 1% cash back on every purchase, and 1.5% cash back after 12 on-time monthly payments
Helps you build or repair credit
Currently only available to those with an offer code
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.
Earns 1.5% cash back on every dollar you spend, or choose to earn rewards points instead
If you choose to earn points instead of cash back, you can earn 1,000 bonus rewards points when you spend $1,000 or more in a billing period
You can get up to a $25,000 credit line
Unlike many other secured cards, it has an annual fee (of $25)
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.
The European Central Bank is worried lenders in the eurozone aren’t properly evaluating the impact of the coronavirus pandemic on the financial health of borrowers, a problem that could result in a sudden cascade of defaults.
head of banking supervision at the ECB, said banks are setting aside less money to cover for loan losses than peers in other countries, including the U.S. He added that the provisions are below levels reached during the financial crisis and short of the levels models suggest are required.
“The way in which banks are preparing for asset quality deterioration varies widely and could, in some cases, be insufficient,” Mr. Enria said Thursday.
He expects the impact of renewed lockdowns will be reflected in banks’ fourth-quarter results and through 2021. Several eurozone banks are due to report their annual results next week.
The true health of eurozone borrowers has become harder to track due to the amount of financial support from the ECB and the region’s governments, which includes payment holidays on existing loans. In Italy, for instance, over a quarter of loans to businesses are under payment moratoriums. In Portugal, half of the credit to companies in the hospitality and restaurant sectors are under the program.
State guarantees on loans have also incentivized eurozone banks to continue lending, including to small companies that would likely go bust without that help.
Mr. Enria said that while the support is likely helping banks to keep their loan books healthy, there are signs lenders aren’t properly looking at the personal situation of the borrowers who received support.
“Since March last year we told banks that they should develop additional indicators to try to understand the quality of their customers and to see through the moratoria,” Mr. Enria said. “We are not seeing a lot of that happening,” he said.
The ECB earlier last year said bad loans in the eurozone could soar as high as €1.4 trillion, equivalent to $1.7 trillion, if the economies were to contract more than expected, a scenario the central bank said was severe but plausible. That amount would be more than during the aftermath of the financial crisis more than a decade ago.
The ECB said the probability of that scenario is lower now, but “significant uncertainties remain in the short to medium term.”
Most banks were able to keep their capital levels stable through last year, although nine have taken advantage of looser regulatory requirements and ate into their buffers, the ECB said Thursday without naming the lenders.
The biggest concern for regulators is that low profitability—and a potential flood of losses from bad credit—could quickly deteriorate those capital levels.
Forget the eyes – nowadays, it is our internet searches that provide a window into the soul.
We often turn to search engines to ask the questions that are on our minds, whether we’re just looking for a quick answer or because it’s something we are embarrassed to ask in person.
Now, Britons’ most common mortgage questions have been revealed, thanks to a new analysis of Google searches.
Many of the mainstream lenders are able to offer a mortgage within 2-3 weeks of an application being submitted, according to the mortgage experts we spoke to
Comparethemarket.com looked at search data from the last twelve months, and discovered that the most asked mortgage question, with 20,960 searches, was ‘How long does a mortgage application take?’
Britons also wanted to know how long a mortgage offer lasted for, how to get a mortgage with bad credit, what an interest only mortgage was, and what a lifetime mortgage was.
Applying for a mortgage can sometimes be complicated, and there is often a lot of jargon to contend with – so it is not surprising that people search online for more information.
This is Money asked Mark Harris of mortgage broker SPF Private Clients, Nicholas Morrey of mortgage broker John Charcol and a spokesperson from the Mortgage Advice Bureau to help provide answers to the five most-asked questions.
How long does a mortgage application take?
The most common mortgage question on Google, this is particularly relevant at the moment given that some buyers are keen to complete before the stamp duty holiday ends on 31 March.
But the answer depends on the type of mortgage application being submitted, according to Harris.
For example, a product transfer – where you stay with your current lender but move to a new deal – can take a matter of days, whilst a more complex mortgage application can take weeks.
‘Once the application is submitted, a lot depends on the lender and the complexity of the application – it may take anywhere between one day to two weeks for an initial assessment to take place,’ Harris said.
If you’re self-employed or the mortgage valuation requires a surveyor to visit the property in person, then you are likely to face further delays.
A firm mortgage offer will follow once your application has been fully reviewed and an acceptable valuation received.
The experts we spoke to said that typically, it would to take two to three weeks from application to offer – but the pandemic has meant that these timescales have been stretched.
‘Unfortunately, during the Covid-19 pandemic, lenders have suffered from staff and resource issues and tasks are taking longer to complete,’ said Harris.
‘Also, given the effect on employment and income, lenders are scrutinising applications in greater depth to see how applicants have been affected.’
How long does a mortgage offer last?
In most cases mortgage offers last for six months, although some offers will only last for three months.
‘If the offer expires, lenders will sometimes agree to an extension – although this will sometimes require a re-assessment by the lender,’ said Morrey.
A typical mortgage offer will last for six months, but this can sometimes be extended
‘For example, the original deal may no longer be available, or a new valuation may be required, or the lender may wish to re-assess your income and outgoings.’
Where an application involves a new-build property, the offer may last longer – potentially up to 12 months, according to Harris.
‘Borrowers should be aware that some new builds have completion deadlines that may not coincide with offer expiry dates,’ he said.
How to get a mortgage with bad credit?
Some lenders will not offer mortgages to people with a history of bad credit, and this was something that Google searchers wanted to know how to get around.
Lenders that are willing to do so often charge a higher interest rate, to reflect the increased level of risk.
‘When getting a mortgage with bad credit, you can expect to borrow less and to pay more in interest in comparison to someone who has an exemplary credit record,’ explained the spokesperson for the Mortgage Advice Bureau.
Having bad credit may mean you are not able to borrow as much on your mortgage
‘High street lenders are generally averse to dealing with those who have bad credit, which can make it pretty difficult.
‘When you apply for a mortgage, it can register on your credit file – and if you apply to a number of lenders to see if they will lend to you, it may be doing additional damage to your credit score.’
‘Your best option, according to Mortgage Advice Bureau, is to contact an established and experienced mortgage broker.
‘They will have access to contacts and deals that are exclusive and not available to the general public. The mortgage broker will carry out a ‘soft’ credit check first, so your inquiry doesn’t negatively impact your credit score.’
What is an interest-only mortgage?
Another common question on Google concerned interest-only mortgages. So what are they?
When borrowing for a home, you can either opt for a repayment mortgage or an interest-only mortgage.
With a repayment mortgage, you will pay back a part of the loan, as well as the interest, each month until you eventually pay off the mortgage.
With an interest-only mortgage, you will only pay the interest each month, with the loan amount remaining the same.
‘It means your monthly payments will be lower but, at the end of the mortgage term, the full amount you borrow is still outstanding and you have to pay the lender back everything at that time,’ said Morrey.
‘When applying for an interest-only loan, the borrower must demonstrate that there is a clear and credible strategy in place to repay the capital,’ added Harris.
What is a lifetime mortgage?
A lifetime mortgage is a mortgage secured on your home, with the loan only being repaid when you pass away, go into long-term care or sell the property.
Two examples of this are retirement interest-only mortgages and equity release mortgages.
Equity release allows you to access some of the equity in your home via a lifetime mortgage
‘Lifetime mortgages often have fixed rates of interest, and in the case of equity release mortgages, the fixed rate is for life and not just two or five years,’ explained Morrey.
He added: ‘They should not be confused with lifetime tracker mortgages, which track a specific index such as the Bank of England base rate – these will likely have an end date and won’t be for a ‘lifetime’ in itself.’
There are strict lending criteria, with the amount you can you borrow depending on your age.
‘Seeking expert financial and legal advice is crucial for this type of mortgage,’ said Harris.
‘An adviser covering both equity release and standard mortgages would be most useful as they can assess the most suitable route forward.’
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What is a subprime mortgage? If you’re asking this question, chances are good you’re either trying to borrow for a home with poor credit or you’ve been offered a loan you’re concerned is a subprime loan. We’ll explain the answer to the question “what is a subprime mortgage?” and discuss some of the risks and alternatives.
What is a subprime mortgage?
Prime loans usually offer competitive interest rates to well-qualified borrowers. A subprime mortgage is similar to a conventional mortgage, except it has a higher interest rate. Subprime loans are geared toward borrowers with bad credit who can’t qualify for a prime mortgage at the best rates. Lenders take a bigger risk with subprime loans, so they charge substantially higher rates due to the borrower’s poor credit history.
If you have a credit score below 620, you may not be able to qualify for a prime mortgage, but you might get a subprime mortgage.
Types of subprime mortgages
There are multiple types of subprime mortgage loans. However, one particular type of loan — an adjustable-rate mortgage — is especially common for subprime mortgages.
Many subprime mortgages are adjustable-rate mortgages, or ARMs. The introductory rate on an ARM is fixed for a limited time. For example, a 5/1 ARM provides a fixed rate for five years. After that, the rate adjusts based on a financial index.
That means your interest rate may go down — but it could go up, too. ARMs carry more risk than fixed rate loans. If interest rates rise, monthly payments could increase. If you take out an adjustable loan, find out how high your payment could go. Don’t assume you’ll always be able to refinance or sell your home before it adjusts.
With fixed-rate subprime mortgages, the interest rate remains the same for the entire repayment period. Since the rate doesn’t change, payments don’t change.
The important question is, what is a subprime mortgage interest rate you’d qualify for? You need to make sure the rate is reasonable and that monthly payments are affordable.
Interest-only mortgages allow you to pay only interest for a limited time, such as the first five years. This makes monthly payments more affordable, but you don’t make progress in reducing your loan principal.
At the end of the initial period, you’ll begin paying both principal and interest. Your payments may rise substantially because you’ll have a shorter timeline to pay your loan off. If you took a 30-year mortgage and only paid interest for the first 10 years, you’d have just 20 years to pay off your entire principal balance.
Most interest-only loans are also structured as ARMs, so you take the added risk of rates going up and payments rising.
Dignity mortgages are a specific type of subprime loan offered by some lenders. With this type of mortgage, you’ll initially have a high interest rate. But if you make on-time payments for a period of time, your interest rate will eventually be reduced to the prime rate.
Subprime mortgage risks
It’s important to also consider if you’re willing to take on the risk of this type of loan. Some of the biggest risks include:
Interest costs will be high: You will pay significantly more mortgage interest over time than if you took out a conventional mortgage.
Finding a lender may be difficult: Not all mortgage lenders offer loans to subprime borrowers. You could be limiting your potential loan options.
Payments could increase: If you choose an ARM, you face the risk of interest rates going up and payments rising.
Foreclosure is possible: If you don’t pay your subprime mortgage loan, your lender will foreclose. Your credit could be severely damaged.
Lenders are required under Dodd-Frank financial reform laws to conduct an “ability-to-repay” assessment. This ensures borrowers are capable of paying back their loans. These mandates can reduce the risk for borrowers. But the bottom line is buying a house with bad credit can create a host of complications.
Alternatives to subprime mortgages
You may be wondering if there are other options. The good news is that there are multiple solutions for borrowers with bad credit. Some of the best options include these government-back loans:
FHA loan:FHA lenders often work with borrowers with lower credit. FHA loans are available to borrowers with credit as low as 500 as long as they make a 10% down payment. Borrowers with scores of 580 or higher can get approved with a 3.5% down payment.
VA loan: A VA mortgage loan is available to eligible service members and veterans regardless of their poor credit history. The VA doesn’t set a minimum score, but some lenders do.
USDA loan: These allow you to purchase eligible homes in rural areas. More stringent underwriting is required to qualify borrowers with credit scores below 640. But it may still be possible to qualify.