There are ways you can get a credit card, even if you have poor credit. Find out now what to look for in cards designed for those who don’t have stellar credit.
When you have a bad credit score it can be hard to qualify for a credit card — especially one with low fees and fair interest rates. That said, one of the best ways to improve your credit score is to use credit cards responsibly. Every time you make an on-time payment to your card, you can help improve your credit score.
So, what should you hope to get out of a credit card when you have bad credit? Keep reading for some insight into what to look for.
Credit building opportunities
If you have bad credit, you may find it hard to qualify for an unsecured credit card. In this case, you may decide to apply for a secured credit card. All secured credit cards offer credit building opportunities and so do most unsecured credit cards.
When you make on-time payments to your secured or unsecured credit card, that good behavior gets reported to the three main credit bureaus (Experian, TransUnion and Equifax). If you decide to use a secured credit card, it’s worth double-checking that your credit card issuer makes these reports to ensure you’re building your credit history. Eventually, your secured card might be automatically converted into an unsecured card if you make enough on-time payments.
Secured cards work like similarly, except you don’t borrow money to use a secured credit card. To open a secured credit card, you must make an initial cash deposit, which will become your credit limit. If you fail to make payments, the credit card issuer will claim the deposit. The main attraction of a secured credit card is that you don’t spend any money you don’t have — your own deposit acts as collateral for the spending you do on the card.
Typically, credit cards charge fees. What these fees look like and how much they cost can vary among cards. Most fees relate to optional features, like making foreign transactions, or act as penalties, like late fees. But some cards do require fees just to use them. Ideally, you should choose one that charges the fewest fees.
Let’s take a look at the different fees commonly associated with credit cards:
- Annual fee: Certain credit cards require the user to pay an annual fee to use them. This can range from $50 to hundreds of dollars. Usually, the higher an annual fee is, the better the perks.
- Late payment fee: If you make a late payment, you may be charged a fee.
- Foreign transaction fee: It’s common for credit cards to charge a foreign transaction fee when someone makes a purchase abroad. This fee is typically 3 percent of the purchase amount. Many travel cards and rewards cards don’t charge foreign transaction fees, but it may be hard to qualify for that kind of card if you have a bad credit score.
- Balance transfer fee: When you transfer the balance from one credit card to a new one, you can be charged a balance transfer fee. It’s usually pretty small and only occurs once, at the moment you perform the balance transfer. You can expect to spend $5 to $10 or 3 percent to 5 percent of the transferred balance amount (whichever is higher).
- Cash advance fee: If you take out a cash advance with your credit card, you may have to pay a fee.
Credit monitoring tools
Credit monitoring tools can help you keep an eye on your credit score and the progress you’re making towards improving it. Try to find a credit card that offers these helpful tools to make sure you have the resources you need to improve your score.
Thanks to the FICO Score Open Access program many banks and credit card providers offer free access to your FICO score, but some issuers provide even more extensive credit monitoring tools. The good news is, some of these credit monitoring tools are available to non-cardholders too. For example, anyone can sign up for American Express’ MyCredit Guide, Capital One’s CreditWise and Chase’s Credit Journey for free.
When you have a bad credit score, using a credit card can be a bit intimidating. But it takes credit to build credit and with a bit of research and planning you can find a card that can help you reach your financial goals — even when you have bad credit. Keep an eye out for credit cards that offer credit building opportunities, charge low fees and make it possible to monitor your credit score closely.