If you want to take out a loan, you must give the financial institution information about your credit history. Why do they need it? Because your FICO score is your “grade” as a borrower. Looking at the number, they can tell you whether you’re a reliable borrower even without your report.
The lower your score, the worse loan terms financial institutions will offer you. With a 500 FICO score, you usually won’t be able to borrow money at less than 36% APR, while borrowers with a high score enjoy loans at even 0% APR.
But what should you do if you have bad or poor credit? How do you get the ability to borrow money at acceptable terms and still gradually increase your score?
The answer to these questions is a credit card. It’s not a payday loan at 500% APR that can drive you into a debt trap, but an opportunity to borrow a small amount of money until your next paycheck. Plus, your score will grow if you pay off all your credit card payments on time.
So which card should you choose? First, let’s discuss the best credit cards for bad credit and see.
Capital One Platinum Credit Card
The first thing you need to know is that you have to deposit at least $49 to be able to use the card. However, unlike other financial institutions, Capital One sets a $200 limit even for those clients who deposit only $49 or $99!
If you fit the company’s criteria, you can deposit up to $1,000 and use $1,000 as your monthly credit limit. Your APR would then be up to 25%, and after only six months of regular use, you could apply for the best unsecured credit cards for bad credit and collect your deposit.
Capital One’s requirements for potential borrowers are as follows:
- No serious negative marks on your credit report, such as bankruptcy.
- Having a checking or savings account.
The company’s clients note that its positive sides are the availability of an application with constant monitoring of the financial situation and account, responsive support service, and the absence of hidden fees. In addition, Capital One doesn’t charge foreign bank card transfer fees and has an annual fee of $0.
The only downside to this card is that it has no cashback or rewards.
The Capital One Platinum Credit Card is great for those who can’t deposit $200 immediately. This is the only option where for only $49 and such a low APR, you can get all the features of other secured cards.
Petal® 1 “No Annual Fee” Visa® Credit Card
This option may be right for you if you want an unsecured card with no required collateral. A card with no annual fee will help you build a credit history and also help you use a small amount of $300 to $5,000 each month at an APR of 22% to 32%.
We should note that this is a fairly high interest rate, even for people with bad credit. However, at the same time, it has no additional fees for services like transferring money from foreign banks or opening an account.
In their reviews, customers of the bank wrote that customer support does not always answer their questions; sometimes, it is impossible to get through for several hours. They advised this card for its cashback in certain stores and rewards systems.
OpenSky® Secured Visa® Credit Card
Another card will give you a $300 to $3,000 credit limit if you deposit the same amount in advance. A huge plus of this card is that you can get it without a bank account or credit check. Moreover, there is no annual fee. So if you want to build a credit history from scratch, this is an excellent option.
This card has a few downsides that its owners write about in their reviews:
- Even if you improve your credit history and use the card for more than six months, you won’t be able to get an unsecured card and get your deposit back automatically. Instead, you’ll have to close the account yourself, withdraw the deposit, and only then open a new, unsecured card.
- It has no reward system.
- You will have to pay a 3% transaction fee to transfer money to this card from foreign banks.
- OpenSky’s user support is poor and rarely responds to customer questions within a day.
To get this card, you must be an American resident over 18, provide a Social Security number, and have a monthly income exceeding your monthly expenses.
Discover it® Secured Credit Card
This is another one of the secured best credit cards for bad credit, which is strongly praised in the reviews of its users. What are the advantages?
First, it has cash back (1%-2% depending on the product category) and a welcome bonus. For example, some users have written that they have collected over $500 in just one year from the cashback in the first year because Discover doubles all the cashback you receive in the first 12 months.
Second, the card has no annual fee and a fairly low APR – the first six months it will be 10.99% and then up to 24.49%. Besides, if you miss one of your monthly payments, you will not have to pay the penalty (only one time).
Thirdly, after the first seven months of card usage, the bank will offer you an unsecured card, and you can get your deposit back.
But this option has some disadvantages. For example, it has the Balance Transfer Fee of 3% on the first payment and 5% on all other payments. In addition, Discover sets a credit limit equal to the amount of your deposit without any discounts, contrary to Capital One.
Tomo Credit Card
To get your card, you need to go through pre-approval. First, you provide your name, age, and residence address, connect a bank account and enter your income and employment information. Then, Tomo will do its verification and approve you. That’s it!
What’s the unique thing customers love about the Tomo card so much? All charges are charged not from you but from the merchant where you use it. It’s also a great card for people just learning to manage their finances wisely because it won’t let you accumulate debts – until you pay back the money you borrowed last week, you won’t be able to use it.
So with frequent payments, low credit utilization, and reports to all three credit bureaus, Tomo helps you build credit history quickly and easily. Besides, just three months of regular use of this card will allow you to switch to monthly payments instead of weekly payments, and a few more months later, you can apply for an unsecured card.
In addition to all the pluses, we can mention the excellent customer service and the availability of a cashback (1%) on specific categories of goods. The only disadvantage of this option is that if you do not make payments on time, your account will be frozen. In addition, the bank won’t pay you back the deposit, and your debt can be turned over to debt collectors with a note on your report.
Mission Lane Visa® Credit Card
Although considered one of the best credit cards for bad credit, this option does not have many of the benefits described above. However, it is still often chosen by those who want to get a card without a security deposit.
The benefits of this option are as follows:
- It is an unsecured card.
- You can get one even if your credit history is not perfect.
- After six months of using the card, your credit limit can increase (initially, it is only $300).
- There is a mobile app with valuable financial tools.
- The bank reports to all three credit bureaus.
There are only two disadvantages to this card, but they are fundamental:
- The annual fee of up to $59.
- The APR is 26.99% to 29.99%.
So we can conclude that if your goal is to improve your FICO score, you are better off with the previous option, a secured card with no APR and a $0 annual fee.
Self-Credit Builder Account with Secured Visa® Credit Card
This option is best used if you have a bad score and can’t get any other card. The idea is that to get a Secured Visa® Credit Card, you need to put at least $100 into a Self’s Credit Builder savings account and use that account for three months.
The upside of this option is obvious – the bank will not run a credit check. However, whether it is worth waiting three months, the answer is obvious – no, there are more convenient and faster options to get a secured card. In addition, you will have to pay a minimum of $25 per year to use this card.
Users point out that the bank is trying to confuse customers by saying that the Self Secured Visa card doesn’t require a security deposit upfront. But the problem is that you do, in fact, need a deposit – it’s just that you don’t put it on this card but on a separate Self’s certificate of deposit account, which you pay an APR to use.
Not the best option you can choose; you’d better use one of the best credit cards for bad credit listed above.
Our selection requirements
We ranked the cards that are most popular among Americans based on the following criteria.
- Overview. We read everything that renowned financial experts have written about these cards to understand their opinions.
- Best for. Each card has its pros and cons, but each is best for a particular situation. That’s why we tried not just to talk about your options but to find the best one for you.
- Annual fee. In a world where you can pay nothing for using cards, some companies still ask for a $50 annual fee. We look for options where you don’t overpay for the same service and want to help you find a card without this fee.
- Intro APR. The sites of some banks have information like “10% APR” and, in small print at the bottom – “the first six months”. This is how they try to attract new customers, but you should realize that this Intro APR is already doubled in the 7th month and can be a problem regarding card payments.
- Regular APR. This is the standard interest rate for using the bank’s money. Always choose the offer with the lowest APR to pay fewer fees.
- Pros & Cons. This item helps you quickly div out if this is the right card for you.
- Customer Service. Not all banks have good customer support. This is an important indicator to consider when choosing a financial institution where you borrow money because if its staff does not answer your questions, you may face big problems.
- Useful features. The availability of cashback, in-app financial tools, and a convenient website are optional but very nice additional features of each bank. That is why we took them into account in our description as well.
Before making the final choice in favor of one of the options, be sure to choose 2-3 favorites and compare them again. Believe me, when you have not seven options but only 3, you will be able to notice their differences much better and understand which one to choose in the end.
What is considered bad credit?
The most popular FICO scoring model is FICO 8. It allows your FICO score to go from 300 to 850 points, and there are only five categories:
- Poor – 300-580 points.
- Fair – 581-670 points.
- Good – 671-740 points.
- Very good – 741-800 points.
- Exceptional – 801-850 points.
The higher your score, the better your loan terms will be. That’s why it’s important to take the time and money to build your credit history. The following criteria have the most impact on your final score:
- 35% – your monthly loan payments.
- 15% – loan age, how many years have you taken out loans?
- 30% – how much money you owe the banks.
- 10% – loan mix, i.e., whether you are using different types of borrowings.
- 10% – new loans.
Knowing these criteria, you can build a plan to improve your FICO score, such as getting a secured card and gradually paying it off or removing negative marks from your report.
When should you get a credit card for bad credit?
Cards for people with low FICO scores don’t have the most favorable terms. However, we recommend getting one if your score is below 670 points. So why would you want one?
First, you can improve your score with this credit card. You won’t need to take out payday loans every time; you will just make monthly payments on the card and build up your credit history.
Secondly, any unsecured card can be your backup in unforeseen financial difficulties. Going to financial institutions every time and spending a few days to get a loan is not a good option, you know.
Third, having a credit card with limit of 500 with a positive history is suitable for your FICO score. Your behavior with it reflects you as a borrower, so lenders often look to see if you are spending all of your available limits and how often you make late payments.
Choosing a credit card for bad credit
First, it is essential to understand that there are hundreds of offers and cards for different purposes in American banks. That’s why you don’t need to choose the first random one out of them, but you need to carefully read all the conditions, analyze your situation and choose the best option.
What criteria do you need to consider when choosing? Let’s discuss this in more detail.
Know your score
Before applying for any of the cards, find your FICO score. This is important because banks often look at this criterion to evaluate you as a potential borrower.
The higher your score, the more options you have. If your rating is below 500, few banks will be willing to give you an unsecured card – most likely, you will have to settle for the option of a deposit. But if your score is above 670, you don’t have to worry, you can even find options with 0% APR.
Know the fees
The next important step in choosing a card is its price. Its price includes all possible fees, namely:
- A usage fee per year.
- Monthly subscription fee.
- Interest rate.
- Late, origination, or other fees.
Many banks set their annual fees at $20-$50, but you should know that even for people with bad credit, there are options without it. Pay most attention to your APR, and always strive to take advantage of the offer with the lowest APR. The higher your interest rate, the more it will cost you.
When it comes to credit cards for people with low FICO scores, banks usually place restrictions on negative marks on your report. For example, you may be denied a card if you have bankruptcy marks, transfer of debt to collectors, or frequent late payments.
If you don’t want to waste your time looking at banks that won’t give you a credit card, request your report from one of the three credit bureaus in advance and see what you can find. This way, you can apply only for offers that are valid for you.
Prep for upgrades
As we said before, people with bad credit histories often have to take secured cards, the limit set according to the deposit made. Unfortunately, this is not a very profitable option because, in addition to putting a few hundred or thousands of dollars into a separate account and leaving it there, you also have to pay APR on the amount you spend from the credit card each month.
That’s why many borrowers try to choose banks that have the option to upgrade automatically to an unsecured card. If you choose this option, too, you can usually pick up the deposit and get the next card after 6-12 months of card use, provided you’ve always paid back the money you borrowed on time.
Be careful, though, because not all financial institutions provide this option. If you don’t want to close one account on your own, withdraw the deposit, and open a second one when your FICO score allows, choose only those banks with an automatic upgrade.
How to apply for a credit card for bad credit
Getting a credit card is very easy. The whole process consists of only five steps:
- First, understand credit rating.
To do this, you need to go to a credit bureau, such as Equifax and request your report, which contains complete information about all the loans you’ve taken out before. Your FICO account will also be listed on this report.
- Choose a card that matches your credit score.
Once you know your FICO score, you can choose from all the cards that match your FICO score. Try not to take cards for bad credit if you have good credit; if you have no credit history, choose the options that do not require a credit check.
- Apply for the card.
To apply for a card, you must provide basic information about yourself, such as your first and last name, address, where you live, and work.
- Refill the security deposit.
If you choose a secured card, you will need to make a deposit of $200 or more. Again, we remind you that this deposit amount sets your credit limit on the card.
- Get the card.
This is it! When the bank approves your application, and you put the deposit down, you can pick up the card as soon as it is ready.