Bad credit can be discouraging, especially if you want to make large transactions like renting a car or buying a home. You may be barred entirely from some credit cards and will likely pay much higher interest or fees for the credit products you can access. The good news is that you can improve your creditworthiness over time by following the steps below. Whether your credit problems stem from poor credit habits like failing to pay your bills on time, losing your job or bankruptcy, or having little credit history because you are young, there is a way to improve your credit. By knowing your credit score and using credit cards that require a deposit, store credit cards, or select traditional credit cards, you should be able to build back a favorable credit record.
Who Should Get a “Bad Credit” Card?
If you have been turned down for credit or told you have bad credit, you still have options for getting a credit card. The first step is to be certain that you can handle credit card debt. If you rarely pay your bills on time or max out your credit card, you may not be ready to handle having a credit card.
What is a FICO Score?
If you think you are ready for a credit card, the first step is to check your FICO score. A FICO score (opens in new tab) measures your credit worthiness on a scale from 300 to 850, where a higher score is better. Major banks, credit unions, and credit card companies often provide a free FICO score to their customers. If you can’t find a FICO score there, you may access one for free at the credit bureau Experian (opens in new tab).
Lenders generally consider a FICO score between 300 and 579 as “bad” (sometimes called "poor") and between 580 and 669 as “fair.” The lower the score, the harder it will be to get a credit card. Consumers with lower credit scores will typically need to offer the lender some assurance that they will pay back their loan. There are three ways borrowers can offer such assurance: by securing a card with an up-front payment, by taking on a higher interest rate, or by paying fees.
|300 - 579||580 - 669||670 - 739||740 - 799||800 - 850|
|Row 2 - Cell 0||Row 2 - Cell 1||Row 2 - Cell 2||Row 2 - Cell 3||Row 2 - Cell 4|
What is a “Secured” Credit Card?
A credit card is “secured” when the borrower pays an upfront deposit that the lender typically holds for the entire time the account is open. Deposit amounts may vary, but generally are between $200 and $300. Some cards, called “low-deposit credit cards,” start with smaller deposits, such as $49, and help borrowers gradually increase their deposit amount.
The “line of credit,” or the total amount a lender can borrow, may be the same as the deposit amount or a bit higher.
A secured credit card is not a quick way to get access to new credit. It will instead help you repair a bad or fair FICO score by showing that you can pay your credit card bill on time. Some cards also offer helpful tools for credit repair. And few borrowers are turned away; even if your credit score is very low, if you are young and have no credit history, or if you are emerging from bankruptcy, you can likely get a secured credit card.
There are some downsides to secured cards. In addition to having to pay an upfront deposit, borrowers may also face high rates of interest and fees. Few will offer rewards like points for travel, and those that do offer rewards will likely have hefty fees.
What Is an “Unsecured” Credit Card?
Most credit cards are “unsecured,” meaning they provide access to credit without an upfront deposit. If your FICO score is fair, you may qualify for an unsecured credit card designed to help repair credit. But beware; these cards often have high interest rates and fees. If you are unable to pay your credit card bill at the end of the month you could easily fall into a credit card hole, damaging your credit even further.
Should You Get a Retail Credit Card?
For those with fair credit, store-branded credit cards are another option. Major retailers like Costco, Amazon, and Target offer credit cards that provide rewards or discounts for in-store purchases. These cards often have high interest rates however, so only sign up for them if you are sure you can pay off your credit card balance each month.
What is an APR?
When signing up for any type of credit card, pay attention to the card’s fees and annual percentage rate, or APR (opens in new tab). Even if you pay your credit card bill a few days late by mistake, a high APR can add hundreds of dollars to the following month’s bill.
Ellen writes on environmental, social and governance (ESG) investing and sustainability. She was an ESG manager and analyst at Calvert Investments for 15 years, focusing on climate change and consumer staples. She served on the sustainability councils of several Fortune 500 companies, led corporate engagements, and filed shareholder proposals.
Prior to joining Calvert, Ellen was a program officer for Winrock International, managing loans to alternative energy projects in Latin America. She earned a master’s from University of California in international relations and Latin America. She is fluent in Spanish and Portuguese.
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