Credit cards for people with bad credit

If you have a bad credit score, you still have options for credit cards.

By   |   Verified by Yvonne Taylor   |   Updated Aug. 5, 2022

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Comparing credit cards for bad credit

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There could be any number of reasons you are looking into credit cards for people with bad credit. One of the likeliest is that your personal credit score has been damaged by your past financial activity, such as late bill payments or even debt defaults or bankruptcy.

Another reason you may be looking into credit card resources for bad credit is that you are a first-time applicant for credit and do not have enough payment history to get approved for an unsecured credit card.

A further possible reason is that you have a low income, or a lower income than the lender is comfortable with for the credit limit you're requesting.

Continue reading below to learn what you can do if you find yourself dealing with any of these bad credit situations.

How to improve your credit score with a credit card

Credit cards for bad credit are usually designed to get you back on track by giving you an opportunity to improve your credit score. Using a credit card responsibly – by always paying at least the minimum payment on time, preferably repaying the whole balance each month and not maxing out your credit limit – will improve your score. That's because the card issuer will report your good financial behavior to a credit bureau, who will record it on your file and adjust your score upwards. If you are approved for a credit card, paying your balance on time each month can be a great way to improve your rating.

Other ways to improve your credit score

Credit scores can also be increased by paying other bills on time. Some examples of these include your mortgage, any outstanding loans you may have, and your regular monthly bills for your cell phone or utilities.

Also, remember not to apply for credit too often because the lender needs to run a credit check each time. These checks are called hard inquiries and can impact credit scores negatively.

Lastly, by paying off any debt you owe, such as a personal loan, you'll be improving your score.

Alternatives if you have bad credit

If you have bad credit, or no credit history to speak of, you need to get creative when it comes to finding alternatives to traditional, unsecured, credit card choices. Aside from just using a debit card or cash everywhere you can, there are some real options you can pursue while you're working on improving your credit score.

Secured credit cards

Secured credit cards, where you deposit cash with the card issuer to use as collateral, are the most common type of credit card for people with bad credit scores. This type of credit card helps you rebuild your credit score by giving you an opportunity to work with a smaller credit limit to show you can manage the amount owing on the card. Your credit limit on a secured card is limited by the deposit amount you put down when you open the account. If you put a larger deposit down when you sign up you'll have a larger credit limit.

While the deposit is refundable, you're still likely to pay an annual fee, as well as other fees attached to the secured card. Also, the benefits attached to the secured card are usually less than you would get with an unsecured credit card. In the end, though, the purpose of a secured credit card is to increase your credit score.

Guaranteed approval credit cards

A guaranteed approval credit card is in many cases just another term for a secured credit card. Card issuers who offer guaranteed approval may sometimes be prepared to approve applications from people with a 'Fair' credit score between 600 and 650, but a score lower than this will very likely only guarantee a secured version of the card you are applying for.

Prepaid credit cards

Unlike secured credit cards, prepaid cards don't have an annual fee to worry about. You also don't need to deal with a credit check or interest rates. You can use a prepaid credit card anywhere you would use a traditional credit card, including online. All you need to do is buy the credit card at a store and top it up with the balance you want.

The limitation of this type of credit card is that you aren't going to increase your credit score as you use it. This sort of card is most useful if you're trying to improve your credit score using other means but still need credit card access in your life.

Buy Now Pay Later services

Another option is to take advantage of Buy Now Pay Later (BNPL) services. Simply choose the BNPL service when you're checking out in-store or online, and create an account through the BNPL provider. Once your account is created you complete your purchase and take your item home or have it delivered. The money you borrowed is interest free as long as you make the repayments on time, usually in four bi-weekly instalments.

With BNPL there is no annual fee to worry about, and usually no hard credit check. There can be late payment fees, however, and possibly account-keeping fees if you don't pay back the amount owing in time. Using a BNPL service doesn't negatively or positively impact your credit score as long as you make those payments when they're due, and not later.

Learn about credit cards for bad credit

What is a credit card for people with bad credit and what are the benefits?

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How long should I wait before applying again if I've recently had an application for credit declined?

A good rule of thumb is to wait at least six months between applications so that you don't hurt your credit score too much because of the credit checks being done by the lenders. Every time you apply for a card, the lender will request your credit history file from a credit bureau. This is known as a hard credit enquiry and will have a downward impact on your credit score.

What credit score is needed for a credit card?

Most credit card issuers need a score of around 650 to approve you for an unsecured card. If you have slightly less than 650 you can still apply for a secured card to see if you get approved. Check your score before you apply, and if it is a little too low, work on improving it for a few months first.

What if my application is declined?

If your application is denied you should focus on rebuilding or establishing your credit until you can apply again. Some great ways to increase your credit include paying down other forms of debt, paying your bills on time, and checking your credit history file for any mistakes that might be there.

What is considered a bad credit score in USA?

Credit scores in the USA range between 300 and 850 or 900, depending on which credit reporting agency is used. A bad credit score in USA is typically around 600 or less.

What makes a credit score bad?

The definition of a bad credit score can vary between different credit reporting agencies and the viewpoint of various lenders. But it is generally agreed that a score below 560 will make it difficult for you to be approved for credit.

If you fail to make payments on time it can have a negative impact on your score. Even missing one payment can hurt your credit score. Also using too much available credit is a bad sign to lenders and impacts your credit. Aim to use only about 30% of your available credit limit at any one time, if possible.

Will having a credit card improve your credit?

If you make your payments on time each month and manage the credit card properly, it can have a positive impact on your credit score. But just having the card won't improve your score. You need to actually use it for purchases and bill payments, and then make on-time repayments.

Access rewards

Even though credit cards for bad credit typically have fewer rewards attached to them than traditional credit cards, there are still benefits you can take advantage of when using this type of card.

These benefits include rewards points, cash back, and discounts when used at certain stores. Sometimes you can find a card with no annual fee attached to it.

Fewer rewards and incentives

A drawback to this type of card is that the rewards you get are typically at a smaller scale than what you would receive with an unsecured card. What this means is that you may not get an initial sign-up incentive and any cashback or rewards points system would be for smaller amounts.

Graduate to an unsecured credit card

Once you have demonstrated responsible use of a credit card for bad credit (typically a secured credit card), you can usually transfer to an unsecured card with the same lender when enough time has passed, bringing your points with you and getting your security deposit refunded.

Lower credit limits

Your credit limit is tied to the amount you put down as a deposit, and it will likely be less than you would have with an unsecured credit card.

This could be interpreted as either a pro or a con. While a low credit limit can be restrictive for some, it can be a real benefit for other people. If you've had an issue with spending control in the past, not being able to exceed a certain amount can be a huge help.

Putting down a deposit to get started

The requirement to put down a deposit to start using a secured credit card can be a lot to ask of some people. While the deposit is refunded once you've moved on to a traditional card, asking you to put down money you may not have can be difficult. Unfortunately, this deposit is what a secured credit card is secured against. Because your credit score isn't enough for the lender to rely on, they use a deposit to ensure they will get their money back if you can't meet your repayments.

Rebuild your credit score

The biggest benefit of credit cards for bad credit is that they can help you rebuild your credit score. By making your payments on time consistently, you will increase your credit score.

Aim to pay all your bills on time

Don't risk having a past-due account reported to a credit bureau and setting back your credit score. Develop good financial habits by setting up a bill-paying system, which could be as simple as having a pile of bills on your desk with the due date written in red at the top of the page, and the bill next due for payment at the top of the pile.

Pick the best card for your needs

You should take your time and do some research before applying for a card. There are a lot of different card options for you to choose from, depending on your needs and lifestyle. This includes cards without an annual fee, cards that have lower interest rates, and cards that have rewards point systems attached to them, as well as other benefits in some cases. Don't just settle for the first card you come across.

Set up automatic bill payments

The first piece of advice we can give is for you to set up automatic credit card payments from your bank account. This will help to make sure you're never late with a payment. You can usually do this online and set it up to make the minimum payment each time, or pay the full balance. Alternatively, you may be able to set a specific amount to be automatically paid when the bill is due.

Use less than 30% of your credit limit

Using more than 30% of your credit limit can put your credit score at risk because it shows lenders that you're relying on your credit card too much. If you can keep a balance of under 30% of your total limit it will let lenders know you aren't spending beyond your means and can manage credit responsibly.