Comparing the Best Credit Cards for Bad Credit
Okay, so your credit isn’t at its best. Maybe you don’t have much experience with paying bills, or perhaps you’ve had a couple of late payments. Well, we’ve got your back.
It may seem counter intuitive, but one of the best and fastest ways to rebuild credit is with a credit card. That’s right. Believe it or not, with the right credit card, you can improve your credit in a few short months. The trick is to know how. We’ll tell you what you need to know and how to do it so there aren’t any surprises along the way. Here’s what we look at:
Best Credit Cards for Bad Credit in 2020
Why it’s the best credit card for bad credit after bankruptcy
After a bankruptcy, the last thing you need is to further damage your score by applying for multiple cards only to be rejected. Luckily, you can qualify for this card even with a previous bankruptcy.
Should you find yourself in a bind and need cash, it could be a lifesaver thanks to its $0 cash advance fee during the first year (after that, $5 or 5% of the amount of each transaction, whichever is greater).
You may be charged an annual fee of $0-$99, which will immediately reduce your available credit. You also won’t earn any cash back, points or miles.
You can check if you pre-qualify online before you apply for a sense of whether you’re likely to be approved. You’re also covered by fraud protection.
Self – Credit Builder Account + Secured Visa® Credit Card
Why it’s the best financial product for establishing credit
The Self – Credit Builder Account + Secured Visa Credit Card doesn’t require a credit history, and you dodge any credit dings since there is no hard credit pull. You also enjoy features like credit monitoring and account alerts to help you stay on track.
By the time you earn your deposit and interest, you avoid secured cards’ typically high interest with a lower-than-average APR, can extend your credit limit based on your savings progress and develop lasting good credit habits.
Because no credit checks are needed, you’ll have to wait to receive your deposit (plus interest) until your 12- to 24-month payments are complete. Plus, you aren’t eligible for the credit card until you’ve made 3 full consecutive payments and have $100 in your account with no outstanding fees. There’s also a one-time $9 account fee and a $25 annual fee on the secured card, but carrying a balance means you could pay interest on your loan and card.
Unlike other secured card options, your repaired credit is stronger since this loan-and-card combo helps build a credit mix – worth 10% of a good credit score – with all 3 credit bureaus. The interest rates and eligibility requirements for the secured card also encourage healthy credit activity.
Why it’s the best credit card for bad credit with quick pre-qualification
Its pre-qualification tool should help you get a sense of your approval chances without impacting your credit score. And if your credit profile isn’t a match, you may be invited to apply for another card.
You can qualify for the card even with a previous bankruptcy, and its foreign transaction fee – 1% of each transaction – is much lower than that of many competing cards.
If you struggle with paying on time, this card could cost you: A penalty APR of 29.90% may kick in after late payments and could apply to your account indefinitely.
It includes fraud protection, so you won’t be liable for any charges made if your card is lost or stolen.
Why it’s the best secured credit card for bad credit
Along with the 2% cash back you’ll earn at gas stations and restaurants (on the first $1,000 in combined spend each quarter), you’ll get 1% back on general purchases. Plus, Discover will match the cash back you earn at the end of your first year.
The card charges no annual fee and gives you a chance to “graduate” to an unsecured card. It also offers some wiggle room: You won’t be charged a penalty fee the first time you pay late and you’ll never be charged a penalty APR.
You’ll have to put down a minimum of $200 as a deposit, which may be more than you want to tie up. You’ll also have to wait a full year after opening your account to get your cash back match.
You can put down a deposit as high as $2,500, which will help keep your credit utilization low. You can also track your credit-building progress with a free FICO scorecard each month.
Why it’s the best credit card for bad credit with a high limit
If you’re approved for the unsecured version of the card, you can get a credit limit of $300 – $750, which is fairly high for someone with damaged credit.
This card could be a good option if you’d rather not pay a deposit. You’ll also have a grace period of 25 days after your last billing cycle to pay your balance with no interest charges.
There’s no guarantee you’ll be offered the unsecured version of the card. Such a low credit ceiling may make it difficult to keep your credit utilization in check, which is a key factor in credit scoring.
Continental Finance states that your account will be reviewed for a credit limit increase after 6 months, which should incentivize you to stick to responsible spending and payment habits.
Why it’s the best credit card for bad credit with instant approval
You can get an approval decision in as little as 60 seconds – no waiting around for days only to be denied.
You could get a $300 credit limit without putting down a deposit. Plus, if you need the card immediately, you can pay an additional fee to get it more quickly via Expedited Processing.
In exchange for the chance to rebuild your credit without putting down a deposit, you’ll pay a lot in fees, including an annual fee, a one-time Program Fee and, after the first year, a monthly servicing fee. You may even be asked to pay a fee if you accept a higher credit limit after your first year.
The card reports monthly to all 3 major credit reporting agencies.
Why it’s the best credit card for bad credit with no credit check
The card doesn’t require a credit check, so you won’t be risking your score in applying. You don’t even need a bank account: You can pay your security deposit via check, Western Union or money order.
You can put down a deposit of up to $3,000 (and get a $3,000 credit limit) to help keep your credit utilization low. Also, should you need to carry a balance, the card’s 17.39% (variable) APR is relatively low.
You won’t earn any cash back, points or miles with this card. It also carries a $35 annual fee and an inactivate account fee of $10 per month if you have no account activity for more than a year.
OpenSky hosts a credit education page on its website to help support your credit-building journey.
Total Visa® Unsecured Credit Card
Why it’s the best credit card for bad credit with no deposit
Because it is in the Visa network, this card is widely accepted both domestically and worldwide. But perhaps the greatest advantage is that a refundable deposit isn’t required for this card.
This card has a number of advantages, including manageable monthly payments, and you can choose from Total’s gallery of card design at no extra charge. Also, you may find out whether you qualify within seconds.
A checking account is required, which can be a problem for someone who has a thin financial portfolio. Also, the regular APR is unusually high, and there are a number of fees to watch out for.
The Total Visa Unsecured Credit Card reports to all 3 major credit bureaus, which means your good credit habits will be noticed by the people who matter.
Compare the best credit cards for bad credit
|Indigo® Platinum Mastercard®
||Credit card for after bankruptcy
|Self – Credit Builder Account + Secured Visa Credit Card
||One Time $9 + Secured Card $25
|Milestone® Gold Mastercard®
|Discover it® Secured
||Secured card for bad credit
|Surge Mastercard Credit Card
||Credit card with a high limit
|First Access Visa® Credit Card
|OpenSky® Secured Visa® Credit Card
||No credit check
|Total Visa® Unsecured Credit Card
Research methodology: how we got to our top picks
Credit cards for bad credit analyzed: 269
Criteria used: credit needed: deposit required (if any); annual fee; regular APR; other rates and fees, including hidden fees such as copy fees and new card fees; customer service; ability to improve credit line; tools to track credit score; rewards rates; security; and miscellaneous benefits, such as no foreign transaction fees and extended warranty protection.
What is bad credit?
A “bad credit” score is typically under 580 out of a range of 300-850 as defined by FICO, with 850 being the best possible score. Using the same 300-850 scale, a VantageScore defines “poor credit” as a credit score under 550.
To get a good or excellent rating, you’ll want to shoot for at least 700. Below that, you’ll be offered higher interest rates and other less-than-stellar offers for financial products.
How many people have bad credit?
According to a study by the credit bureau Experian, about 16% of consumers have bad credit, and more than a third of the population has what lenders call a subprime score, which includes the fair and poor categories.
Here’s how credit scores break down in the U.S.:
||% of people
||Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.
||Applicants with scores in this range are considered to be subprime borrowers.
||Only 8% of applicants in this score range are likely to become seriously delinquent in the future.
||Applicants with scores here are likely to receive better than average rates from lenders.
||Applicants with scores in this range are at the top of the list for the best rates from lenders.
How do you get bad credit?
You can end up with bad credit in a variety of ways, including:
- Credit card or loan defaults – As you might expect, failing to pay off your credit card bills or pay back a loan – also known as defaulting – marks you as a clear credit risk to lenders.
- Late payments – Your payment history accounts for 35% of your credit score. If you’re late with your payments – be they credit cards, student loans or mortgages – your credit will take a big hit.
- Maxing out your cards – Credit utilization – the amount you’ve borrowed compared to your total available credit – accounts for another 30% of your score. While you may have heard an old rule of thumb that says you should keep your credit utilization below 30%, this is a myth. The lower your credit utilization, the better.
- Charge offs – When a creditor decides you have no intention of paying back your debt and stops collection attempts, your account will become charged off.
- Bankruptcy ‐ While it’s sometimes your only option to get out from under debt, bankruptcy is a credit score disaster, and should only be used as a last resort.
- Foreclosure – The higher your starting credit score, the bigger a drop you’ll see as a result of foreclosure (as much as 140 points according to FICO research).
- Judgments – Judgments show lenders that the court system had to force you to pay off your debt. Be sure to settle your debts, as an unpaid judgment is worse than a paid judgment.
What are the effects of bad credit?
You’ll face higher interest rates, trouble with credit and loan application approval, difficulty renting an apartment, higher insurance premiums and even trouble getting certain jobs.
What to look out for in a credit card for bad credit
A 2015 CFPB study looked at the vulnerability of subprime consumers (consumers with a FICO score of 659 or below) and found that credit cards for bad credit are significantly more expensive, with fees and interest exceeding 40% of those consumers’ year-end balances in 2013 and 2014.
The CFPB also found that agreements for credit card products marketed primarily by subprime specialist issuers are particularly difficult to read.
Here are the key elements to keep in mind when evaluating credit cards for bad credit:
Credit cards for people with bad credit tend to carry a lot of fees. You may need to weigh annual fees, program fees and inactive account fees, to name a few. The trick is to know how to look for them before committing to a card.
Take a look at the card’s rates and fees document on the application page. While the primary fees (late fee, foreign transaction, etc.) are displayed at the top of the document, which is called the Schumer Box, lesser-known fees may appear lower in the document in the text.
Another concern should be interest rates. “Someone with bad credit is likely to only qualify for loans or credit with relatively high interest rates,” says Washington, D.C.-based lawyer and financial planner Rachel Podnos. “This is also a red flag but may be unavoidable. If someone with bad credit must apply for credit at high interest rates, my advice would be to never ever carry a balance. Carrying any balance in this situation can quickly become crippling and impossible to tackle because it grows exponentially.”
As such, getting the lowest rate possible should be one of your top priorities if you know you’ll carry a balance
Minimum/maximum security deposit
If your card requires a deposit, check the range offered to see if it makes sense. Can you afford to tie up $1,000?
You’ll want to be sure the card offers a limit that’s high enough to allow you to keep your credit utilization low.
Be wary of targeted mailers
Finally, watch out for mailings that target your situation. The CFPB found that banks send these mailings disproportionally to consumers with lower levels of formal education.
Warning: Credit cards scams increasing
While credit card scams are a small part of scams reported to the Federal Trade Commission – they were 12th among the most common scams reported in 2019 – they have increased by 88% in the last year, according to the FTC’s Consumer Sentinel Network Data Book 2019. Bottom line: Go with a reputable card issuer and make sure you are clear about the terms before applying.
How to fix bad credit
There are a handful of steps that can get you the score you need for the credit card you want – just follow the scoring model of FICO.
How your FICO® credit score is calculated
At 35%, the most impactful element of your credit score is whether you’ve consistently paid your monthly statement on time. One late payment can cause your score to drop into a lower range.
How to boost your score: Pay on time. Tools like account alerts and automatic payments can help you avoid a missed payment if you’ve got a lot on your plate. If you’re new to credit, becoming an authorized user can boost your score as long as the primary cardholder pays on time and in full each month.
Credit utilization ratio
Your credit utilization ratio is how much you owe on your cards compared to how much credit you have available. If you owe $100 and you have $1,000 in available credit, your ratio is 10%, which is good. The lower the ratio the better. This makes up 30% of your score.
How to boost your score: Whittle down your balance, or better yet, pay in full each month. Consider making early, multiple payments to keep your utilization ratio low at all times, since you don’t know when during the month your credit information will be sent.
The average credit history of your accounts and how often they’re used decide 15% of your credit score.
How to boost your score: Keep your old account open. If it isn’t a favorite card, consider setting up a small recurring automatic charge on the card, like a streaming subscription, along with an automatic payment to ensure you never miss a bill.
Holding a variety of credit types makes up 10% of your credit score. Successfully maintaining installment loans (such as car loans) along with revolving credit (such as credit cards) shows lenders you have experience managing diverse credit lines.
How to boost your score: Consider other credit lines. Of course, avoid unnecessary debt, but branching out with a small credit-builder loan could slightly improve your score.
The last 10% of your credit score comes from taking on new credit. When you apply for a new credit card, you are authorizing a hard inquiry (or “hard pull”), one of which can temporarily ding your credit score by only about 5 points, and only for a few months.
How to boost your score: Avoid frequent credit applications. Apply for credit when you need it, but creditors could see you as risky if they find a lot of hard inquiries on your credit report. Use preapproval tools like CardMatch™ to see if you prequalify.
Dispute suspicious credit activity
Of course, be sure to check your credit reports for free at AnnualCreditReport.com. An error or suspicious activity on your credit report could seriously damage your credit score if it goes unnoticed.
If you’ve been a victim of fraud or if you review your credit report and find mistakes, be sure to dispute the incorrect items. Many issuers provide free monthly credit reports and credit monitoring services to help you catch errors or identity theft early on.
Credit score myths
Credit bureau TransUnion found that a surprising number of consumers misunderstand what is used to generate their credit reports and scores. Let’s clear some of these myths up:
- Closing a credit card account doesn’t necessarily decrease your credit score.
- There’s no tool that protects all 3 credit reports at once.
- Marital status isn’t part of your credit report.
- Healthy credit isn’t required to enter a foreign country.
- Your credit is not impacted when you check your own credit score.
- Late payments on things like utility bills are sometimes, but not always included in credit scores.
How long does it take to rebuild credit?
With responsible card use, you can see your credit score improve in a matter of months. That said, some negative items on your report will take years to be fully “erased.”
|Time to see impact / time to fall off report
- Fixed mistakes and disputed fraudulent activity
- Paying off credit card balances
- Hard inquiries (remain on report for up to 2 years, but no impact after 12 months)
- Late payments (stay on report for 7 years, but impact can be lessened in around 2 years with good credit behavior)
- Charged off accounts (7 years from original delinquency date of account)
- Foreclosures (7 years)
- Chapter 13 bankruptcy (7 years)
- Chapter 7 bankruptcy (10 years)
Source: Experian Information Solutions
What to do if your application is denied
Luckily, you won’t be left in the dark on the “why,” as issuers are legally required to send you an adverse action notice explaining why you were denied.
Here are some common reasons for denial and what you can do about them:
- Too much debt – Your balances are too high. Make a budget and pay more than the minimum each month to pay down your existing debt.
- Limited credit history – Wait a couple of months, then apply for a secured card designed for credit building. Within months, your score will improve with on-time payments.
- Low income – Next time, try a card that is not a premium product, but has the features you are looking for.
- Too many applications – Take a break from applying for cards for several months and focus on building your credit with a credit-builder loan.
- Too young – People under 21 must have an independent source of income to get a card, but you can be an authorized user and still build credit
- Negative information on credit reports – Late payments or judgments, such as bankruptcies, take time to drop off your reports. Just pay on time and in full going forward.
- Score too low – If the issue is your credit score, you can look at a credit-builder loan at your credit union. About 1 in 5 credit unions offer credit-builder loans.
FAQ: Credit cards and bad credit
When you have a bad credit score and are looking for a new credit card, it can be tough to know where to begin. Check out these commonly asked questions to get a sense of which direction you should go.
Can you get a credit card with no bank account?
It will be very difficult to get a credit card without a bank account. Even most cards backed by a deposit require you to have a bank account. One exception is the OpenSky Secured Visa: You can pay your security deposit via money order or have someone send the issuer a check or transfer on your behalf.
Can you prequalify for a credit card with bad credit?
You certainly can, though not all issuers offer prequalification. Luckily, those that do typically determine who prequalifies for a card with a soft credit pull, which won’t impact your credit score. That said, your application can still be denied even after you’ve prequalified.
Credit cards for bad credit that offer prequalification include:
Can you get a credit card after bankruptcy?
Yes. Not only is it possible to find a credit card after bankruptcy, it’s a great way to get your credit back on track. To save time and protect your credit score, it’s best to only apply for credit cards designed for bad credit and rebuilding credit. Indeed, a few such cards explicitly state that previous bankruptcy is OK, including the Indigo Platinum Mastercard and the Milestone Gold Mastercard.
Secured vs. unsecured credit cards for bad credit
There are two main types of cards to consider when you’re looking for a credit card with bad credit: secured and unsecured cards. Both can be a useful tool in your credit-rebuilding efforts.
Secured credit cards
Secured cards require a refundable deposit, which is usually equal to your credit limit. With many cards, after 6-12 months of on-time payments, you should be able to get your deposit back and graduate to a traditional (unsecured) credit card with a higher limit.
Examples of secured credit cards for bad credit:
|Capital One® Secured Mastercard®
|Discover it Secured
|First Progress Platinum Prestige Mastercard Secured Credit Card
|OpenSky Secured Visa Credit Card
||No Credit Check
Unsecured credit cards
An unsecured credit card, as the name implies, offers an “unsecured” line of credit, so you won’t have to put down a security deposit to borrow money. You’re given a credit limit based on your creditworthiness and can borrow up to that amount.
Examples of unsecured credit cards for bad credit:
|Total Visa Unsecured Credit Card
|Credit One Bank Unsecured Visa with Cash Back Rewards
||$0 - $99
|Credit One Bank Unsecured Visa with Free Credit Score Access
||$0 - $99
Can you do a balance transfer with bad credit?
It’s technically possible to do a balance transfer with bad credit, but it may not be practical. The only cards you’re likely to qualify for that allow balance transfers are secured cards, and it usually makes more sense to pay down a portion of your existing balance than put up a deposit.
Can you get blacklisted by a credit card company?
While there’s no official credit “blacklist,” if you’ve burned a credit card company in the past, they may be unlikely to offer you any new credit for years to come. Additionally, if you have a history of bounced checks or refusing to pay a negative balance at your bank, you could be flagged by ChexSystems, a consumer reporting agency that gathers reports of checking account misuse or fraud. Activity stays in a ChexSystems report for five years.
Can I use a store credit card to repair my bad credit?
A store credit card could be a solid bad credit option, offering a low entry barrier and a chance to build credit while you earn rewards at your favorite retailer.
Pros of using a store card for bad credit
- Qualifying for a store credit card is usually easier.
- You can build credit with responsible use.
- Store cards offer money-saving store rewards, perks and discounts.
- Store cards rarely charge an annual fee.
Cons of using a store card for bad credit
- Store cards tend to carry extremely high APRs.
- You could get stuck with deferred interest.
- Store cards are often “closed loop” cards.
- A store card could spark frivolous spending.
Bottom line: The best store credit card for bad credit is one that keeps you on track with your credit-building goals. To ensure good habits, pick a card tied to a store you visit frequently for everyday purchases.
Laura is an editor and writer at CreditCards.com. She has written extensively on all things credit cards and works to bring you the most up-to-date analysis and advice. Laura’s work has been cited in such publications as the New York Times and Associated Press. You can reach her by e-mail at firstname.lastname@example.org and on Twitter @creditcards_lm.
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