How to Choose a Credit Card When You Have Bad Credit

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If you have bad credit, there’s a whole category of credit cards for consumers like you. Some even come with perks, like rewards and free credit score monitoring, that you may be surprised are available to you.

The goal should be to pick a card that can help rebuild your credit while also offering both short- and long-term benefits. Here’s a step-by-step guide to help you choose the best credit card for you.

Step 1: Know Where You Stand

First, pull your free credit report. You’re entitled to one free report each year from each of the three major credit bureaus—Equifax, Experian, and TransUnion—at AnnualCreditReport.com. Take stock of what you find: Do you have a limited credit file that you’d like to build up, or do you have missed payments, maxed-out credit cards, or account delinquencies that caused your score to drop? The answer will affect whether you target cards for those with no credit, or for those trying to repair it.

Next, check your credit score. There are several ways to get your score for free. Many banks and credit card companies offer free scores on monthly statements. Discover and Capital One also offer free credit scores to everyone, not just their customers.

Your credit score gives a snapshot of how good your credit is at a given point in time. FICO—the scoring model most commonly used by lenders —categorizes any score under 580 as poor, and a score between 580 and 669 as fair . A poor score will likely limit your options for a traditional, unsecured credit card more than a fair score will. 

Even those with the lowest scores may be able to get a secured credit card, unless you don’t meet income requirements or have a pending bankruptcy. A secured credit card works just like a traditional, unsecured credit card, except that you’ll leave a cash deposit, which is also often equivalent to your credit limit. For instance, if you deposit $500, you’ll have a $500 credit limit.

Note

Over time, you can “graduate” from a secured to an unsecured card if you show consistent on-time payments and keep your balance low.

Step 2: Look for Features that Help Improve Your Credit

Now that you know if you’re going to aim for secured or unsecured credit cards, consider the features you’ll look out for. Since your goal is to build or rebuild your credit, the card you choose should have all or most of the following characteristics: 

  • Card activity reported to all three credit bureaus: This is key to ensuring that on-time payments add positive history to your credit report, helping your score rise over time.
  • No penalty APR: Some cards give you a one-time pass if you’re late on a payment, meaning they won’t charge a late fee, or they won’t impose a higher penalty interest rate if you’re late. Both are perks worth looking into if you’re just getting back on your feet, but your best bet is to avoid falling behind in the first place. Late payments will negatively affect your credit score.
  • Grace period: Look for cards that offer a grace period so that you don’t have to pay interest on purchases if you pay your bill in full by the due date. Purchases made on cards without a grace period start accruing interest from the moment you make them.
  • Access to credit education: Benefits like free credit score monitoring and analysis can help motivate you to keep making improvements to your credit.  

Step 3: Compare Rates and Fees

Credit cards come with many potential fees, starting with an annual fee just to keep the card open. Not all cards have one, but many cards for those with bad credit do.

Other charges include late fees, overlimit fees if you make charges beyond your credit limit, cash advance fees, balance transfer fees, and foreign transaction fees. 

Tip

You can view all of these items at once by looking at the handy chart, dubbed the Schumer box, that lists all fees and rates in the card’s terms and conditions.

When you have bad credit, your APR will likely be on the higher side of the range that credit card issuers list. Most cards base the rate you’ll receive on creditworthiness.

Step 4: Look Deeper for Rewards and Benefits

Depending on the state of your credit, you may only have a few card options. But if you’re on the cusp of fair credit, you can be more selective and look for consumer protections, rewards, and benefits in the cards you consider.

Credit cards for fair credit may offer perks like extended warranty coverage, travel assistance, or identity theft monitoring. As for rewards, even if you have bad credit, you can still find secured credit cards that provide cash back or points that can be redeemed for travel, gift cards, and other items.  

Step 5: Think Long-Term

While your immediate mission is to get a credit card, make sure the card you choose has long-term value for you. For instance, if you get a secured card, check that there is a clear path to upgrade to an unsecured account. 

For unsecured cards, try to find out if the issuer reviews your account and grants automatic credit limit increases. Having more available credit, but using little of it, can help you build a stronger credit score. 

Finally, consider whether the card’s terms, benefits, and rewards are attractive enough for you to keep the card even after your credit improves. Plan to keep your account open in most cases, since longer credit history can positively affect your score.

Go from Bad Credit to Better

No matter which credit card you choose and get approved for, use it for the reason you got it: to rebuild your credit. Stick with these three key strategies:

  • Make on-time payments every month, and in full.
  • Keep your balance below 30% of your total credit limit at all times; if your limit is $1,000, for instance, don’t let your balance go above $300.
  • Take advantage of free credit score tracking and other tools to follow your progress.

Over time, as your credit score improves, you’ll gain access to a new tier of credit cards with more favorable terms and even better benefits.

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