Credit Cards for Bad Credit

Comparing Credit Cards for Bad Credit

By: Laura Mohammad

Updated: May 14, 2018

OK, 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 counterintuitive, but the best and fastest way to firm up that sagging 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 unsecured credit cards for bad credit
• Best secured credit cards for bad credit
• Research methodology
• What is bad credit?
• Credit score factors
• Tips to improve your credit score
• What to do before applying
• What to look for in a credit card
• Types of cards to avoid
• Card benefits
• What to do if you miss a payment
• What to do if your application is denied
• How to properly use a bad credit card
• Related bad credit categories
• Quick recap

Not sure where to start? We can help.

CreditCards.com's Best Unsecured Credit Cards for Bad Credit of 2018:

• Surge Mastercard Credit Card: Best for initial credit limit
• Credit One Bank® Visa® Credit Card: Best for groceries
• First PREMIER® Bank Mastercard® Credit Card: Best for chip technology
• Total VISA® Unsecured Credit Card: Best for easy application
• First PREMIER® Bank Credit Card: Best for fast response
• Milestone® Gold Mastercard®: Best for wide acceptance
• Credit One Bank® Unsecured Visa® with Cash Back Rewards: Best for growing credit line

CreditCards.com's Best Secured Credit Cards for Bad Credit of 2018:

• Capital One® Secured Mastercard®: Best for building credit
• Discover it® Secured Card: Best for cash back

Research methodology: how we got to our top picks

Credit cards for bad credit analyzed: 269

Criteria used: Credit needed, deposit required (if any), hidden fees, annual fee, regular APR, other rates and fees, customer service, ability to improve credit line, tools to track credit score, rewards rates, security, miscellaneous benefits

What is bad credit?

A "bad credit" FICO score is typically under 580 out of a range of 300-850, with 850 as the best. With the same scale, a poor VantageScore is usually below 550.

To get a good or excellent rating, you'll want to shoot for at least 700. Below that and you'll be offered higher interest rates and other not-amazing financial products. (More on that later.)

That's the bad news. The good news is that it takes a few short months of good consumer behavior to improve your score. But beware: Once you're on the path to good financial habits, you'll want to keep it up, because one misstep can drop your score quickly, in fact considerably more quickly than when you were improving your credit.

Bad credit is determined by how you have handled your credit over the years. If you have missed payments or even just don't have a lot of information in your file, your credit may not be great. The two most important components of your FICO score are on-time payments (35% of your score) and how much you owe compared to how much credit you have available (30% of your score). That means if you have had late payments, that is likely the primary cause of your poor credit, but if you have a high balance on the credit cards you have, that can be a heavy weight as well.

Credit score ranges...

How many people have bad credit?

Credit bureau Experian studied data from scoring model FICO and found that 17% of consumers have bad credit. More than a third of the population has what lenders call a subprime score, which includes the fair and poor categories. At the other end, Americans with exceptional scores make up 19.9% of the population.

But what do those scores mean for you? Here, we look at the percentage of people with each scoring range and what that score means for them.

Percentages of consumers by credit range...

FICO data, from Experian

Factors that credit bureaus look at that can help your credit score improve

Credit bureaus do not assess your creditworthiness. That's the job of credit scores.

Your credit report is the accumulation of credit behavior in the last 7-10 years. Your credit score is a measurement of the data from the credit report.

Lenders send your credit data to the three major credit bureaus, TransUnion, Experian and Equifax. Each bureau generates a report, which includes personal information, such as your name and past addresses, your accounts and whether you paid bills on time.

Credit score models FICO and VantageScore use a formula with 5-6 major components, including on-time payments, a debt-to-available-credit ratio, and other credit habits. The data for the components come from the credit reports.

What's in a credit score?

You actually have more credit scores than fingers and toes, but no need to worry. There are more than a dozen credit scores for each credit bureau, many for different industries, such as auto, mortgage and credit cards. But the scores you'll want to worry about for now are the consumer versions available to you through FICO and VantageScore.

The most valuable aspect of the FICO scoring model, the model most used by lenders, is payment history, making up 35% of your score. The same is true of VantageScore. That's why it's so important that you pay your bills on time each month. Here is what the scoring models care about:

• Are you paying on time? This is the most important element of your credit score. One missed payment can drop your score quickly, while it can take months and even years to build your credit.
• Are you keeping your balances low? Both FICO and VantageScore want you to keep your balances low, thereby lowering your utilization ratio.
• How old is your credit history? Credit scores like it when you have a long history of credit. That's why it's a good idea to keep your oldest credit card open and active.
• Have you recently applied for new credit? Avoid applying for multiple cards in a short amount of time, because that can negatively impact your score.
• Do you have a mix of credit types? One way to give your score a little boost is to take out a small installment loan, such as a car loan or a credit-builder loan.

What does a credit score NOT include?

Credit bureau TransUnion found that a surprising number of consumers misunderstand what is used to generate their credit reports and scores. From marital status to income, Americans wrongly think that their credit data are influenced by characteristics that have little to do with financial health.

1. Myth #1: More than one-third (35%) of consumers wrongly believe closing a credit card account decreases a credit score.
2. Myth #2: Nearly half (48%) of respondents said you can protect all of your credit reports at once, but there is actually no tool that protects all 3 credit reports at once.
3. Myth #3: Some 44% of all consumers don't know that marital status isn't on a credit report.
4. Myth #4: Almost a third of consumers (31%) wrongly believe that healthy credit is required to enter a foreign country.
5. Myth #5: More than two-fifths (43%) of consumers incorrectly think that your credit is impacted when you check your own credit score.
6. Myth #6: More than half of consumers (51%) wrongly think that late payments like utility bills are always included in credit scores. That's not always true.

This survey, conducted in June 2017, polls 1,002 U.S. adults. The fact is that 65% of your FICO credit score is tied to on-time payments and low balances. Your race, marital status, income, whether you have kids – none of that factors in. Instead, it's about how you treat your finances, such as your variety of lending products and how often you apply for credit.

How do I get a free credit score?

Credit cards sometimes offer free credit scores, so check if the card you are eyeing offers that feature.

You can also get your VantageScore for free through creditcards.com.

How do I get a free credit report?

You can access your TransUnion credit report for free on creditcards.com, or on the one site directed by federal law to release the 3 reports for free: AnnualCreditReport.com.

You are legally allowed to access each report for free once a year on this site. Some credit experts recommend that you pull one of your reports every 4 months, staggering the requests. You can pull your credit report on creditcards.com once a month.

The AnnualCreditReport.com portal will ask for personal data, such as your birthdate and your social security number, ask you to choose which credit bureau's report you want, then ask you a series of detailed questions only you would know, such as payment amounts for past loans, past addresses and other information. It helps to have this information handy when you pull a report. If you answer incorrectly, you may be shut out of the system for that bureau, and you may have to apply by snail mail.

Check the report thoroughly for inaccurate information, such as unknown accounts. Request that the bureau correct any inaccurate information, preferably by snail mail, so that you don't lose any negotiation rights.

Tips to improve your credit score

Ready to build your credit? There are a number of tricks to increase your score to one you love, and it only takes a few months, if you do it correctly.

Once your score is at about 700 on a scale of 300-850, your credit card options will open up considerably. But first, follow these steps:

1. Check your credit reports for errors. First things first – check the reports of the 3 major credit bureaus for mistakes and inaccuracies, which can sometimes be a sign that your credit has been highjacked. Have the credit bureaus change any errors.
2. Check your credit score. With your credit score, you can assess which credit cards or lending products you qualify for.
3. Take out a credit card. The easiest and fastest way to building credit is by taking out a credit card and using it every month.
4. Don't apply for multiple cards. Every time you apply for a card, your credit takes a small, temporary hit, typically about 5 points. But if you take out multiple cards, it can be a signal to lenders that you are desperate for cash.
5. Make a charge each month. If you put your card in your sock drawer and forget about it, you run the risk of having your account closed for inactivity. Instead, put a small charge on it each month.
6. Pay on time and in full. This is the single most important thing you can do with your card to ensure your score keeps climbing.
7. Build a mix of credit. If you want to give your credit an extra boost, consider taking out an installment loan, such as a credit-builder loan. Mortgages and car loans are the most common types of installment loans. A mix of credit makes up 10% of your FICO score, while it's highly influential on VantageScore.

One is to build your credit so you can take out a card for building cash back, attaining superior travel benefits or gathering travel points or miles. Here, we look at some cards that require excellent credit to keep in your sights.

Cards with excellent credit to aspire for...

Do secured cards help your credit score?

Secured credit cards are an excellent way to build credit, provided the card issuer reports your good credit habits to the 3 major credit bureaus, TransUnion, Experian and Equifax.

Secured cards are credit cards that require a refundable deposit, usually the same amount as your credit limit.

What are the different types of "bad credit" cards?

Bad credit doesn't have to dog you. In fact, cards that accept consumers in the "bad" category can help you build your credit within months. Two different types of "bad credit" cards are secured cards and unsecured cards:

Secured card – The secured card is perhaps the best known type of card for people with bad credit. Here's how it works: You pay a refundable deposit, say $200, then you are allowed to borrow off of that amount on your card. Some cards require you to have a bank account.

Secured credit cards...

Unsecured card – An unsecured card is best known as a rewards, travel or cashback card, but in this case, it is a credit-builder card without the required deposit of a secured card. While the credit limit will likely be low, these cards can have small cashback benefits of about 1%.

Unsecured cards for poor credit...

Watch out for fees with both types of cards. You can be charged a servicing fee, an annual fee and other charges. Check the rates and fees link on the card's landing page.

What is the difference between a secured card, a prepaid card and a debit card?

A secured card is a credit card that can be used to build credit.

A prepaid card acts like a credit card, but you "load" money in it periodically for spending purposes, so it isn't truly a credit card, which lends you the money for charges. Prepaid cards are a great tool for budgeting and managing your spending, particularly if you've had trouble with finances in the past.

A debit card is a card attached to an account with cash in it, such as a checking account. Debit cards may not have the protections of credit cards because they are not protected by the Credit CARD Act of 2009. Rules vary among banks and credit unions. Debit cards are a good option for convenience.

Do prepaid cards and debit cards help build credit?

Prepaid cards are not credit cards, and they don't help you build credit. If you want to build credit, a secured credit card is a good start. Just make sure you put a small charge on the card each month to keep the account open and active. And of course, pay in full and on time so that you take full advantage of your credit building.

A debit card, which is attached to a bank account, also cannot be used for building credit.

What to do before applying for a credit card if you have bad credit

If you feel ready to tackle acquiring a credit card, but you know your options are limited, never fear. It's feasible to get a credit card, even with credit that isn't so great. Here are some steps you should take before applying:

• Check your credit score. There's no point in applying for a credit card unless you are reasonably sure you will get it. That's because every time you apply, your credit takes a small hit and too many applications can seem like desperation to lenders. That's why you need to check your credit score and make sure it matches the cards you are looking at.
• Check your credit report. You'll need to look at your 3 credit reports to ensure that they are accurate and that you don't have any unfinished business, such as an unpaid bill. Clean up your report by having errors corrected and own up to any unpaid bills or collections.
• Thoroughly research. Look at all aspects of the cards you like – rewards, fees, credit score, annual fee and so on. Read the terms and conditions carefully, because fees and surprise rules can be mentioned lower in the text. See if the card offers no credit check or prequalification.
• Don't apply for multiple cards. Now that you've found a few cards you are interested in, don't be tempted to apply for all of them. Instead, deliberate about which one best suits your needs and that you are most likely to get, and apply for that one.

What to look for in a credit card if you have bad credit

If you have bad, thin or no credit, don't despair. There is a card for pretty much every circumstance, from great credit to none. You just need to make sure you apply for the right card for your credit.

Credit cards for bad credit have a number of features that mimic the cards reserved for consumers with excellent credit. But they also have features and downsides tailored to the consumers whose credit may not be their best.

Here's what to look for:

• Does the card require a bank account? For example, Total Visa Unsecured requires that you have a checking account. While having a bank account doesn't directly help you build credit, it shows that you have managed your finances in some fashion.

Cards that require a checking account...

• Does the card allow you to prequalify? If so, that is an excellent way to check if you can get the product without impacting your credit, because hard pulls, a type of credit check, impact your score in a temporary way to the tune of about 5 points. Milestone Gold Mastercard advertises "quick pre-qualification available with no impact to your credit score."
• Does the card require a credit check? OpenSky Secured Visa is one card that doesn't require a credit check, but it has fees that you need to be aware of, such as an inactive account fee, a dormant account fee and $150 fee for each garnishment/levy. The no credit check feature is rare.
• Have you checked the fees? There can be little-known fees with ill-defined descriptions, such as one card's "account opening fee." There can also be various "maintenance fees" and other surprises hidden in the fine print, such as an increase in annual fee after the first year. Read the terms and conditions carefully before you apply.
• Does the card issuer report to the credit bureaus? Usually, card issuers report to the 3 major credit bureaus, but check just to make sure.
• What's the credit range required? Don't apply until you know your credit score and what the card issuer requires. You don't want to be rejected and also have a ding on your credit.
• Are there rewards? Some cards have rewards, such as the Credit One Bank Unsecured for Cash Rewards, which offers 1% cashback rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV.

Cards for bad credit with rewards...

• Is it a secured or unsecured card? Note that this doesn't indicate whether there are add-on fees, what credit is required or other provisions. Always read the fine print carefully.
• Is there fee forgiveness? Some cards are forgiving with paying late or going over your limit, such as the Discover it Secured Credit Card. However, that shouldn't be a deciding factor, because if you really want to improve your credit, you need to pay on time and in full each month, and never go over the limit. If you do, you run the risk of losing your card, or worse, experiencing a drop in your credit score. Also, while a card may forgive the first late payment, don't count on avoiding a fee the second or third time.

Types of cards to avoid if you have bad credit

When you have poor or bad credit, your credit product options are severely limited. But even if you could scrape through and land a card for better credit, if you have a bad track record with your finances, there are cards you'll want to avoid:

• Balance transfer cards – If you already have an issue with paying bills in full, a balance transfer card isn't going to solve the problem. It can actually exacerbate the issue if you transfer from a card with a lower APR to a 0% offer with a higher APR after the 0% offer ends, should you have a balance at that point. Instead, get a handle on your budget, pay more than the minimum and don't add debt to your card.
• Cards with high annual fees – As tempting as a card may be, with an annual credit, generous ongoing rewards and other goodies, avoid cards with high annual fees, because if your cash output is limited, you aren't going to be able to take full advantage of the card's features. Instead, work on building your credit with a more simple card.
• Cards that require high credit scores – There's no point is applying for a card that requires a high credit score if your score is rock-bottom, because all you'll achieve is a ding on your credit score for the honor of providing your personal information.
• Cards that require high initial spend – As amazing as a 50,000-point sign-up bonus may seem, keep in mind that with it comes a required spend that you may not be able to afford. You definitely don't want to commit to spending money you don't already have in the bank for things you don't need.

A card for bad credit vs. excellent credit: benefits differences

From the rental car waiver of Chase Sapphire Preferred to the $600 protection on your cellphone (subject to $25 deductible) of Wells Fargo Cash Wise Visa® Card, there are myriad reasons why cards with excellent credit are a worthy goal.

With excellent credit, you can get a card that gives you access to airport lounges as in the case of the Citi/AAdvantage Executive World Elite Mastercard; a $300 annual airline credit in the case of the Chase Sapphire Reserve; or employee cards with the Business Gold Rewards from American Express.

But if you haven't achieved that credit score of at least 700, then focus on finding a card for bad or fair credit.

While you work on your credit score, though, you can enjoy a credit-builder card that offers rewards and even no annual fee. Here is a comparison of 2 cards, one with excellent credit and one with poor:

Comparing card for excellent credit and card for bad credit...

What do I do if I miss a payment?

You get your new credit card; you put purchases on it; you make payments each month; then you forget one. What happens next?

Most card issuers charge a late fee, and they might also increase your purchase APR. Repeated offenses can cause you to lose the account. Finally, late and missed payments impact your credit score, and that's what you should care about most.

Missed payments can quickly drop your credit score by dozens of points and it can be months before you see an improvement. The good news is that the older the missed payment is on your credit report, the less importance it has.

If you've missed a payment, call your card issuer immediately. Explain your circumstance, work out a payment plan and see if they'll waive the late fee. You might even be able to get them to not report the late payment to the credit bureaus. It doesn't hurt to ask.

Now, going forward, put a reminder on your Google calendar that goes to your email to make sure you pay on time each month. For good measure, pay in full each month to keep your credit utilization ratio low, an important part of your credit score.

How do I talk to my card issuer about a delinquent account?

If you've missed payments or gotten in over your head, it's time to own up and call your card issuer. The bottom line is that you are ultimately responsible for the debt you've incurred. You spent the money, and now you need to make things right.

A number of things may be happening with your account at this point. Your purchase APR may have increased. Your credit limit may have dropped. The account may have even been closed. The sooner you talk to your issuer, the less damage will be inflicted.

First off, stay calm when you call. Raising your voice and making accusations will achieve nothing. Explain your circumstance, tell them what you are prepared to do to make it right, and ask if the APR can be lowered/the account can be reopened/your credit limit can be returned to the original amount.

In fact, almost 9 out of 10 consumers polled said that their issuer granted them a late payment waiver when they asked. Here's what creditcards.com learned from 952 American cardholders:

Also, if the issuer is sending late payment notices to the credit bureaus, make a deal with them so that they stop. If you can't pay the owed amount in full, arrange a payment schedule. But, you'll want to pay off the debt as soon as possible so the damage to your credit score is not so severe.

What to do if your application is denied

So, you picked out a card, you did your research, yet you were denied. What to do?

Your first step needs to be to request from the card issuer why the application was denied. That will help inform your decisions going forward.

If the issue is your credit score, you can look at a credit-builder loan at your credit union. About one in five credit unions offer credit-builder loans. These loans are offered a number of ways: For example, there are unsecured credit-builder loans that provide a lump sum upfront that can be used for an emergency expense. With another type, the loan proceeds are held by the lender until the total amount is paid.

Some card issuers offer to prequalify you, which means they look at your credit to assess whether you are likely to be approved, but the soft pull on your credit does not affect your score. For example, Milestone Gold Mastercard promises a quick decision on their prequalification.

Keep checking your credit score and your credit files with the credit bureaus. Make sure everything is accurate and clear up anything that is not.

Apply for another card cautiously, because unless the issuer indicates otherwise, your credit takes a small hit each time you apply, whether you are accepted or not. Wait a couple of months before applying again if there is going to be a hard pull.

How to properly use a bad credit card

It's worth your while to improve your credit score – for obvious and not-so-obvious reasons.

Not only lenders look at your creditworthiness, but also landlords, employers, your cellphone company and insurance company – and even your date on Friday night. In fact, Bankrate found this to be a pretty big issue for singles in the market in a 2017 poll.

A Bankrate Money Pulse survey found that a full 50% of women would be influenced by a credit score when deciding to date someone, while 35% of men said the same thing.

So, yes, it is definitely worth your while to work on improving your credit.

There are a few rules to responsible card use. To use your credit card wisely, do this:

• Don't take out a credit card with an annual fee unless you need it to build credit or you are planning to maximize points or benefits.
• Never carry a balance from month to month. Credit cards should not be used for long-term loans. Interest rates on credit cards average just over 16% APR, but credit-builder cards can be almost 25%. That means if you carry $500 on your card, it will take you 27 months to pay the minimum amount and you will pay $153 in interest. Yuk.
• If you are building credit, put a small charge on your card each month to keep the account active and open, and pay in full and on time.
• Once you have built your credit to at least a FICO score of 700, only take out a rewards card if you have a working budget and you feel you can accurately track your charges and payments.

Credit-builder cards' APRs compared to excellent cards' APRs

One very compelling reason to improve your credit is so that you can take out a card with a better APR. While you don't want to carry a balance if at all possible, you definitely don't want to be saddled with a debilitating interest rate.

Here is a comparison of APRs for cards with bad and excellent credit.

Comparing APRs for cards with bad and excellent credit...

As you can see, the cards that require good or excellent credit have considerably lower starting points on their APRs.

Related bad credit categories:

• Secured Credit Cards
• Credit Cards for No Credit History
• Student Credit Cards

In review: here are the best credit cards for bad credit of 2018