Used right, subprime cards can help rebuild credit

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I have scores of 592, 612 and 619. What credit cards can I apply for? And are subprime cards good? I also have seven inquiries on my credit report.  -- Kevin


Dear Kevin,
Presuming you’re referring to either the FICO or the VantageScore, which both start at 300 and go up to 850, your scores are on the low side. But that’s OK. There are plenty of credit cards that have been developed specifically for people with scores in the range you cite. The number of inquiries you have on your credit reports may be negatively impacting those numbers, so I’ll explain what you can do about that.

Credit cards that don’t require excellent credit scores can be great, except for the interest rates. Currently, APRs on credit cards for those with exceptional credit ratings begin at around 12 percent, while people with poor ratings may get cards with rates of 23 percent or higher. If you purchase things with such a high rate card and then take months to revolve the debt, the interest fees will be expensive. However, the rate won’t matter if you pay the entire bill by the due date. Then you’ll enjoy the lowest rate possible – 0 percent – because no interest will be added. That’s what the interest-free grace period is all about!

Do note that some subprime cards can come with other charges, such as processing and monthly service fees, so pay attention to the fine print when searching for cards in your credit score range.

Aside from a credit score, a credit issuer will also assess the information you list on the application. Income is an essential qualifying factor. Credit issuers need to know that you can afford to cover whatever debt you can get into with the credit line.

Regarding inquiries, these are generated by lenders after you have applied for a loan or a credit card. Because they show up on a credit report, they are factored into your credit scores. Of course, you have to apply for credit in order to get it, but too many attempts (especially if there is little else on your report) will reduce your scores. The reason why is that numerous requests for credit make it appear that you're desperate for money. Inquiries drop off your reports after two years and become less important as time passes. So stop applying for new credit until you pinpoint a card that you’re both eligible for and that you like.

Which brings me to the types of cards you ought to pursue. There are two basic varieties of credit cards  unsecured and secured. Unsecured card qualification depends greatly on credit scores. If your scores were high, it would be an indication that you have a long and positive relationship with creditors. Your credit reports would show that you pay your bills on time, don’t get into too much debt and can handle all sorts of credit products. And the better your scores, the greater the perks. For example, the cards may have especially low interest rates and generous rewards programs.

Conversely, when your scores are low, it’s either because you are new to credit, you’ve been late on payments, racked up a lot of debt or had accounts go into collections. A credit issuer would consider all those scenarios risky. Therefore, a secured card might be better for you. A secured card requires a cash deposit that is held in a separate account, and a credit line equal to (and sometimes greater than) the security sum is granted. These cards function the same as unsecured accounts. You’ll get the funds back, minus any fees, when you clear the balance and close the account. Mind that if you fail to pay what you charge, the issuer can claim what’s due from the security deposit.

You can review secured card options on this website by clicking on the "Credit Quality" tab and then clicking on "Secured Credit Cards."

You don’t say whether all those inquiries on your credit reports were made by credit card issuers or other lenders. If you’ve recently applied for numerous cards, I would hold off applying for a new card for six months or more. If you were rejected for numerous unsecured cards, then a secured card is definitely the way to go once you let a little time pass.

See related: 9 things to know about secured cards

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Updated: 01-21-2019