How to Get a Credit Card With Bad Credit
Options for Getting a Credit Card Despite a Bad Credit History
People with bad credit have the fewest options for credit cards. That's because few credit card issuers want to take the risk of extending a credit limit they may not get paid for. The lower your credit score, the harder it will be to get approved for a credit card, but it's not completely hopeless. Though it may be hard, you can get a credit card with bad credit.
How Bad Is Your Credit Score?
You probably know you have bad credit because you've previously applied for a credit card, loan, or other credit-based service and have been denied. If you haven't already, check your credit score to see where you stand exactly.
You may receive a credit score automatically in the mail after being denied credit if your credit score was the reason that you were denied. Otherwise, you can purchase your credit score directly from FICO via myFICO.com or through any of the three credit bureaus. Some credit card issuers, Discover and Capital One, make credit scores available to their cardholders. Alternatively, you can obtain free versions of your credit score from CreditKarma.com, CreditSesame.com, or Quizzle.
Beware of websites claiming to offer free credit scores as a gimmick to sign you up for a subscription credit monitoring service. If you have to enter your credit card number to get the "free" credit score, it's a sure sign that you're enrolling on a trial subscription and you'll be charged if you don't cancel.
Credit Cards for People With Bad Credit
There are very few credit cards aimed specifically at people who have bad credit. The Capital One Classic Platinum approves applicants with credit scores as low as 577 according to CreditKarma.com. The card has a 22.9% regular APR and $39 annual fee. You may be able to get the annual fee waived if you ask.
Orchard Bank credit cards were previously a good option for people with bad credit. However, the company who issued Orchard Bank cards (HSBC) was acquired by Capital One in 2012 and the Orchard Bank cards were discontinued.
Retail stores have a reputation for approving applicants who have bad credit. You have a better chance of getting approved for a limited purpose credit card that can only be used at that store rather than a credit card backed by Visa or MasterCard. Be aware that retail store credit cards come with low credit limits and high interest rates. The best way to manage a card like this is to only charge a small amount and to pay your balance in full each month.
Be Willing to Pay a Deposit
Too many borrowers dismiss secured credit cards because the cards require a security deposit to be made against the credit limit. A secured credit card that reports to the major bureaus is better than having no credit card at all. Many secured credit cards can be converted to unsecured credit cards after a year of on-time payments.
If it's the security deposit that's keeping you from getting a secured credit card, start putting $50 in a savings account each month. In six months, you'll have $300 to put toward a credit secured credit card. Some of the money can be used to take care of the application fee and the rest can be put toward your credit card balance. Yes, you'll have a low credit limit starting out, but that's true of unsecured credit cards for bad credit, too.
The Capital One Secured MasterCard accepts a security deposit as low as $49 or $99 for a $200 credit limit depending on your credit. If you have extremely bad credit, you'll have to pay the entire minimum $200 security deposit, but you can come up with that in four months by saving $50 a month.
Be willing to make the sacrifice to meet the goal of improving your credit. As long as you are responsible with your payments and do not default on the balance, your deposit will be returned to you.
Don't Waste Time on Credit Cards for Good or Excellent Credit
Avoid applying for credit cards aimed for people with high credit scores, "just to see" if you can get approved. You're very likely to be denied and the additional applications can damage your credit score even more.
You can typically tell a credit card is aimed for someone with excellent credit by the benefits it provides. Credit cards with excellent rewards, low APRs, and promotional interest rates are almost always aimed at consumers with excellent credit. Applicants with poor credit scores are usually denied.
What to Watch Out For
Beware of fee harvester, or subprime credit cards, that charge high upfront fees which take up most of your credit limit. Though Federal law limits the amount of fees to 25% of the credit limit, at least one subprime credit card issuer has gotten around the law by assessing a $90 fee before the credit card is ever issued. Credit cards issued by First Premier and Credit One banks are examples of credit cards to stay away from.
Prepaid cards are often advertised as an option for people with bad credit, but these aren't really credit cards. Prepaid cards require you to make a deposit before you can use it to make purchases. But unlike secured credit cards, your prepaid card purchases are deducted from your balance. Prepaid cards don't improve your credit either, because they don't report to the major credit bureaus. (They can't since they're not a credit product.)
The Bad Credit Card Isn't Forever
Credit cards for people with bad credit don't have the most attractive credit card terms. Annual fees, high interest rates, low credit limits, and sometimes poor customer service are among the features you'll have to deal with, but just for a short time. Don't expect this temporary credit card situation to be perfect. Your goal is to pay your bill on time and improve your credit so you can qualify for something better, which can be done in about 12 to 18 months if you're responsible with your credit.