Credit cards for bad credit: what you need to know before applying

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If you find yourself getting denied for credit cards, loans and other financial resources, you probably have bad credit. Luckily, there are credit cards designed specifically for people with poor credit.

Opening new lines of credit and having the opportunity to rebuild your credit score can be difficult—especially when you already have a low credit score. However, there are some options available to you. By signing up for the right cards and practicing responsible finances, you can move forward with your financial situation.

What is considered bad credit?

Bad credit is typically recognized as a credit score lower than 670 on a scale from 300 to 850. A score between 300 and 669 is representative of poor or fair credit, according to FICO®. On the other end of the spectrum, a FICO credit score between 740 and 850 is considered very good or excellent.

Your credit score is a number generated based on your credit history. While some actions can build your score, others knock it down. It’s crucial to make debt payments on time and be careful with your credit cards in order to avoid bad credit.

You can obtain a free credit report from any of the three main credit bureaus—Experian®, Equifax® or TransUnion®—once every week at AnnualCreditReport.com.

Because your credit score is a reflection of your past long-term credit behavior, it is used to predict your future behavior. So, for banks and other lenders, a credit score is a way to measure your reliability: how likely are you to repay debt? It’s not something to be taken lightly, as it can lead to loan denial or affect your ability to receive other financial products.

But don’t worry if your credit score is less than ideal—you can get a credit card designed for people with bad credit. Using a card like this responsibly by making payments on time and in full will most likely help you improve your credit score.

We’ve compiled important information about applying for and using a credit card with bad credit. Continue reading to learn everything you need to know, from how to apply to which cards you should avoid. Your credit may be on the mend before you know it.

Pros and cons of credit cards for bad credit

Applying for any kind of credit card can be a big decision that could affect your financial standing for years—for better or worse. It’s important to know the benefits and drawbacks of applying for one designed to help people with bad credit before you start your application.

What to know before applying for a credit card for bad credit

Think you might be ready to apply for a credit card that can help improve your credit? Here’s what you should consider before starting the process.

1.  Know your credit score.
   Before you do anything, it’s essential that you know what your credit score is. Not only will it help you find the credit cards you’re more likely to be approved for, but it also serves as a baseline for your progress. Find an issuer that provides free access to your score and credit reports. This way you can reference it frequently to track your improvement.
   
   
2.  Find a credit card with low fees.
   Look for secured credit cards with low fees that report to the three major credit bureaus. Low fees are crucial for making sure that you'll be able to make payments, and the card must report to the national credit reporting agencies in order for you to build credit.
   
   
3.  Establish an upgrade plan.
   Just like you’d want a job that has a promotion path, your credit card should also have a way for you to upgrade. Make sure that the issuer can eventually move you to an unsecured card or one with better terms.
   
   
4.  Make sure it’s a secured credit card.
   A secured card can be a good starting point for you to rebuild your credit. This type of credit card is backed, or secured, by a cash deposit that decides the amount of your credit limit. Frequent small charges and on-time payments will work to boost your credit score and limit.

Unsecured vs. secured credit cards

The majority of credit cards are unsecured cards. They don’t require a deposit and offer a limited line of credit that you can borrow against. Because these cards aren’t backed by collateral (meaning a lender has nothing to seize if you fail to pay), they’re typically for people with a strong credit history.

Secured credit cards are specifically for people with rocky or insufficient credit histories. They require a deposit, generally $200 or more, that serves as collateral, since the card user is more likely to default on payments. However, your credit limit and score can increase if you're able to build a positive credit history with this type of card.

How to apply for a credit card with bad credit

Now that you have an idea of the type of credit card you need, it’s time to start applying. It may not be as nerve-wracking as a college or job application, but it’s still an important decision. Follow these guidelines to make the best application choices:

1.  Apply for a credit card at a bank or credit union where you already have an account.
   You’re more likely to get approved for a credit card at a financial institution where you have an existing history, provided that you have managed your account responsibly.
2.  See if you’re preapproved for a credit card.
   Additionally, you can do some paperwork to see if you meet the lender’s criteria, making you prequalified.
   
   
3.  Include your income on your application.
   Be sure to include your total income on your application. While your credit score is a good indicator of your past financial reliability, your income level and debt-to-income ratio are helpful measurements in gauging whether you’ll be able to make payments.
   
   
4.  Expect your credit score to go down a few points.
   When determining if you’re fit for credit card approval, a lender will usually check your credit report. This hard inquiry can lower your score and remain on your report for several months. Luckily, the damage is typically minimal and goes away with time.
   
   
5.  Don’t give up if you’re denied.
   You can call a reconsideration line to make your case to a representative. Figure out what you will say before the call: know why you were denied, have a good reason for wanting the card and prepare examples of how you’re fiscally responsible.

How to improve your credit score using your new card

Once you get your new card, it’s time to focus on improving your bad credit. Here are six tips to improve your credit score when using your new card:

1.  Use your new card.
   Some people are hesitant to use credit cards because of the stigma surrounding them. As long as you make responsible purchase decisions, using your credit card will actually build your credit.
   
   
2.  Don’t overuse it.
   It’s advised that you keep your credit utilization, or the percentage of available credit you use, under 30 percent. This way you can still pay your balance off while boosting your credit. You can calculate this ratio by dividing your balance by your total credit limit (balance ÷ credit limit = credit utilization).
   
   
3.  Set up a system for payment reminders.
   It can be easy to overlook due dates amidst the chaos of life. Set calendar alerts so that you’ll never miss a payment. You may even want to set reminders to warn you a couple days before the due date so you can make sure everything is in order.
   
   
4.  Make full payments on time.
   It’s best to pay your balance in full every month, but that’s not always feasible. Paying the minimum amount by the due date is also acceptable. Anything you can do to avoid paying more on those high interest rates, made even higher by your bad credit, is crucial.
   
   
5.  Track your progress.
   As mentioned previously, checking your credit score and reports often is necessary to determine if your efforts are paying off. You should closely examine your credit reports to make sure there are no inaccuracies bringing your score down.
   
   
6.  Keep your account open as long as possible.
   The age of your credit accounts is positively related to your credit score. That is, the older your accounts are, the better it is for your credit. But if there’s a compelling reason to close the account, such as a fee on a card you’re not using, then you may do so.

How long will it take to fix bad credit with a new card?

Boosting bad credit with a new card could take as little as a few months or as much as a few years. Most negative items can sit on your reports for an astonishing seven to 10 years, so the speed with which you can fix your credit depends on what, specifically, you have on your reports and how responsibly you use your credit cards.

Making payments on your credit card in full every month may help you build up your credit more quickly. Conversely, missing payments or only paying the minimum amount will lengthen the process.

If you have any outstanding debt, focus on paying it down. Once you reduce your current debt, you can ideally accrue and then pay off smaller amounts of debt on your new credit card. By doing this, you are increasing your reliability to pay debt.

Along the way, your credit will likely improve. Unfortunately, there is no tried and true timeline for fixing your credit—how long it takes varies by person.

Dealing with the high fees, steep interest rates and subpar customer service associated with credit cards for bad credit is not ideal. The good news is that you can upgrade to other credit cards as your credit improves, even if the changes are only minor.

What is the easiest credit card to get with bad credit?

In general, the easiest credit cards to get when you have bad credit are secured credit cards. Secured credit cards are easier to qualify for because they require cardholders to make a deposit that acts as collateral (and determines the credit limit) in case they fail to make payments. This means less risk for the issuer since they’re virtually guaranteed repayment, hence the more relaxed qualification requirements.

Store-specific credit cards are also usually a little easier to qualify for than traditional credit cards from banks, as they often have low credit limits.

However, you should keep in mind that there are no guarantees that an issuer will approve you for any credit card, even a secured credit card or a store credit card.

What types of cards should you avoid with bad credit?

Keep in mind that having bad credit may mean that you’re unlikely to qualify for certain types of credit cards. It could also make credit cards you can qualify for riskier or more expensive to use.

• Unsecured credit cards. Unsecured credit cards aren’t usually the best option for people with bad or no credit. These credit cards have zero collateral so your credit limit revolves around your credit risk (which is high). This means that you’ll pay higher fees and/or interest rates.
• Rewards cards. Cashback and travel cards offer enticing rewards. However, these cards are for people with good or excellent credit, so applying for these cards may only hurt your credit score. Focus on improving your credit before seeking out one of these cards.
• Prepaid debit cards. Prepaid debit cards are promoted as cards for people with bad credit, but they actually don’t improve your credit at all. You simply make a deposit and then purchases are subtracted from your balance like a gift card.
• Cards without a grace period. These cards start accruing interest right away. Also pay attention to cards with high fees as they try to mask them with low deposits. Be sure to read the fine print.

Your bad credit isn’t a lost cause. There are numerous credit cards available with the specific intention of helping people repair their poor credit. Now you should have a clear understanding of what to look for and what to avoid in credit cards for bad credit.

When you open a new line of credit, stay on top of all of your payments. By using your credit responsibly right away, you can work toward accessing credit cards with more attractive perks and features. Think of this first card as a stepping-stone. Master financial responsibility at this level, and you can advance to a more flexible and rewarding option in the future.

Wondering where your credit stands? Sign up for a free credit assessment to see your FICO® credit score.