If you have bad credit, your credit card choices are limited. Experts recommend a few good options, and caution against cards that will do you more harm than good.
A few years ago, it didn’t much matter what your three-digit number the credit bureaus gave you for your credit score — credit card companies were falling over themselves to offer hefty lines of credit to anyone who could fill out the application.
But these days? Don’t expect much unless your credit report is nearly spotless. “It’s harder than ever to get credit,” acknowledges Chris Farrell, economics editor for public radio’s “Marketplace Money.”
That said, even if your credit’s been tarnished by job loss, medical problems or foreclosure, you still have options. Here are a few cards you may want to consider as you work to rebuild your credit score.
Cards with a co-signer. If you’ve got a friend or family member with good credit willing to help you get back on your feet, consider asking them to be a co-signer on a credit card, says Gail Cunningham, senior director of public relations for the National Foundation of Credit Counseling. Be careful, though — they’ll be on the hook if you fail to pay off your debt. “The activity on your card will be reported to the credit bureau on your report — and the report of the co-signer,” she says. “That’s critical to remember — the co-signer is going to suffer if you stumble.”
Secured credit cards. The classic option of secured credit cards is coming back into fashion as lenders look for ever-safer lending options, says Farrell. “Depending on the terms of the deal, you might put $500 into an account — and then you have a $500 limit,” he says. “You can’t overrun your credit limit, and after a year or two of using it regularly, you apply for a traditional, unsecured card.”
Gas or store cards. Head to Shell, Target, or BP, and you should be able to get a store or gas card much more easily than general purpose cards such as a Visa or MasterCard. You’ll likely find very high interest rates on the cards, but if you pay off your bills on time, it won’t matter. “Getting a gas credit card is a technique that people used a lot in the 1970s when we also had a lot of economic turmoil,” says Farrell.
Bad credit card danger signals
While you might get other offers for deals that sound more promising than these, it may be because there are other downsides not worth the cost — or they’re scams. Check for these red flags on any credit card offer you’re considering:
Upfront fees. If you’re asked to pay a fee before you get credit, run the other way, says Scott Bilker, founder of DebtSmart.com. “It’s against the law to pay an upfront fee,” he says. “They can charge you a fee after you get the credit, but not before.”
Short grace periods. A grace period is the period of time you’re not required to make payments on a debt. A 30-day grace period is ideal, but credit card companies have been winching that number down to as few as 20 days, which may make it more ifficult for some to make on-time payments. “Anything over 25 days is OK,” says Farrell.
High membership fees. In some cases, membership doesn’t have its privileges, says Bilker. “You might pay $300 to have a $200 credit line,” he says. “Even if it’s legit, you don’t want to be that desperate.”