Credit Cards for Bad Credit

Comparing Credit Cards for Bad Credit

By: Laura Mohammad

Updated: October 1, 2019

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 counterintuitive, 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 2019
• Compare the best bad credit credit cards of 2019
• Research methodology
• What is bad credit?
• What to look for in a credit card
• Types of cards to avoid
• Secured cards vs. unsecured cards
• What you need to know about credit scores
• What to do if your application is denied

Not sure where to start? We can help.

Best credit cards for bad credit in 2019

Credit One Bank® Visa® Credit Card

Best for: Building your credit history.

Pros

The Credit One Bank Visa Credit Card has some great features, such as choosing your own due date and access to a free Experian credit score. There are also a number of card designs to choose from, although there may be a fee.

Cons

The rewards are lower than the Discover it Secured Card, with 1% back on purchases such as gas, groceries, and services such as mobile phone, internet, cable, satellite TV (terms apply).

Indigo® Platinum Mastercard®

Best for: No security deposit.

Pros

The foreign transaction fee is a low 1% and the hidden fees are kept to a minimum. Also, a previous bankruptcy is OK and there is pre-qualification, making the application fast and easy.

Cons

While there's no security deposit required with this card, there is a rising annual fee, and your initial credit limit may only range from $225-$300. Finally, there are no ongoing rewards and no sign-up bonus is offered.

Discover it® Secured

Best for: Balance transfer intro APR

Pros

The Discover it Secured offers the rare feature for a credit-builder card of a balance transfer intro APR of 10.99% for 6 months, then 24.74% variable after that. Also, the ongoing rewards are excellent for a beginner card.

Cons

There's a lot to love about this card, although you may balk at the fact that as a secured card, you must put a refundable deposit down that typically matches your credit limit.

Milestone® Gold Mastercard®

Best for: Quick pre-qualification process.

Pros

This card offers quick and easy pre-qualification with no impact on your credit score. Additionally, previous bankruptcy does not disqualify applicants from being approved.

Cons

Milestone® Gold Mastercard® does not offer the most competitive purchase APR among similar cards. It also doesn't offer cash back, miles, or points.

Credit One Bank® Unsecured Visa® with Cash Back Rewards

Best for: Cash back with bad credit.

Pros

Not only does this card offer rewards, it is unsecured, which means you don't have to put down a refundable security deposit in exchange for your credit limit.

Cons

This card's regular APR is crazy high starting at 19.99%-25.99% variable. Also, there is an annual fee, which can be avoided if you are willing to take out a secured card, such as the Discover it Secured.

Compare the best credit cards for bad credit

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.

Credit bureau Experian studied data from scoring model FICO and found that 16% 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 20% 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.

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.
• 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.
• Does the card require a credit check? The no credit check feature is quite rare. One card that doesn't require a credit check is the OpenSky Secured Visa, although it has some fees you should watch out for.
• 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.
• Are there rewards? Some cards have rewards, such as the Credit One Bank Unsecured Visa with Cash Back Rewards, which offers 1% cashback rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV. Terms apply.

Cards for bad credit with rewards...

Types of cards to avoid if you have bad credit

Before you go any further, keep in mind that when you have poor or bad credit, your credit product options are severely limited. 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.

Secured cards vs. unsecured cards

Bad credit doesn't have to dog you forever. 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 credit cards

Secured cards are credit cards that require a refundable deposit, usually the same amount as your credit limit. Perhaps the best known type of card for people with bad credit, they 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. It typically works like this: 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.

As Ted Rossman explains, "This is similar to a debit card, but better because it will report to the credit bureaus and help improve your credit history (as long as you pay on time). You can use the secured card to make purchases in-person and online, in some cases even earning rewards. 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."

Example of secured cards for bad credit:

Unsecured credit cards

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%.

Examples of unsecured cards for bad credit:

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 you need to know about credit scores

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. Here is what is in your score and some tips for handling your card:

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. Clean up your report by having errors corrected and own up to any unpaid bills or collections.
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. Also, take the time to build your credit. The scoring models like older, well-maintained accounts.
4. Pay on time.The most important aspect of your credit score, make sure you pay on time or even early.
5. Don't apply for multiple cards. Every time you apply for a card, your credit takes a small, temporary hit, typically about 5 points. If you take out multiple cards in quick succession, it can be a signal to lenders that you are desperate for cash.
6. 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.
7. 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 17% APR, but credit-builder cards can be 25% and even more. 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.
8. 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.
9. Stay clear of annual fees. 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.
10. When it's time for a rewards card. 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.

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 to whether you have kids, Americans wrongly think that their credit data are influenced by characteristics that have little to do with financial health. Here are 6 myths TransUnion discovered in its study:

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.

How do I get a free credit report?

You can access the scores through the credit bureau and the scoring model for a fee. FICO charges about $20 for each score. Some third-party companies, such as credit card issuers like Capital One and Discover, might provide your score for free.

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

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.

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?

Actually, there's not a lot of guesswork here, because issuers are required by law to send you an adverse action notice to explain why you were denied a card.

Here are some reasons why you might be denied and what you can do about them:

Too much debt – This one's pretty straightforward – your balances are too high. Before applying for another card, establish a budget and pay more than the minimum each month to pay down your debt.

Limited credit history – This is easy to fix. Simply wait a couple of months, then apply for a secured card designed for credit building. Within months, your score will improve and you'll have on-time payments under your belt.

Low income – You may have overshot. Next time, try a card that is not a premium product, but has the features you are looking for.

Too many applications – Went a little crazy? Here's what to do: Take a break from applying for cards for several months and focus on building your credit with a credit-builder loan. Then, when you reapply, make sure it's a card you are reasonably sure you will get.

Too young – The Credit CARD Act of 2009 requires people under 21 to have an independent source of income to get a card, but you can be an authorized user and build credit. Just make sure the holder of the account is responsible with the account and pays on time and in full each month.

Negative information on reports – Late payments or judgments, such as bankruptcies, take time to drop off your reports, but know that the older the negative activity, the less important it is. If you are paying on time and in full going forward, that will help your credit tremendously.

Score too low – 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.

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 laura.mohammad@creditcards.com and on Twitter @creditcards_lm.