Bad Credit Credit Cards: 4 Options
Even if you have very bad credit, credit cards aren’t out of your reach. In fact, if you only have a few problems, and they’re a few years old, you may still get offered fairly competitive rates. If you don’t qualify for a competitive credit card, there are four options especially for people with bad credit who want a charge card:
- High-interest credit cards
- Secured credit cards
- Co-signed credit cards
- Department store or gas station credit cards
High-interest credit cardsCredit card issuers have become less strict about credit history when reviewing new applications. In fact, even if you have severe problems in your credit history, you may still be able to get a Visa or MasterCard from the same banks or credit card companies as everyone else—though most likely one with a low limit and a high interest rate.
- You can rebuild your credit rating with regular on-time payments. Some credit cards marketed to people with bad credit even offer to report monthly to credit bureaus to rebuild your credit faster.
- You have all the convenience of a credit card, which is becoming essential for things like car rentals and hotel reservations, where a debit card is often not accepted.
- Your limit may be as low as $300 and your interest rate well past 20%. Of course, the upside is that the low limit means there is a built-in limit to how much debt you can build up, taking some of the sting out of the high interest rate. Just be careful not to go over your limit—paying the entire balance monthly, or even twice a month, is the safest bet, and also means you can safely make purchases in the several-hundred-dollar range. Another upside: your limit may increase with regular on-time payments.
- You need to make absolutely sure that you do not miss a single payment, or it’s back to the drawing board in terms of your credit rating. Tip: arrange with your bank to create a special account that will automatically send in the minimum payment well in advance of the due date. Most banks can set this up without charging you. If your bank demands hefty fees for a second account, you might just want to open up a new checking account at a different bank.
Secured credit cardsAlmost anyone, no matter how bad his or her credit, can get a secured credit card. If you can't get a traditional card, or just don't want to spend all the time researching and applying for them, a secured card is probably your best option.
For a secured credit card, you put down a certain amount of money. Often, the amount is equal to your card’s credit limit. The card issuer can take this money if you default in payment.
- Positives: the same as for high-interest, low-limit credit cards. You can rebuild your credit rating with a real credit card that offers classic credit-card convenience.
- Negatives: the same as for high-interest, low-limit credit cards, plus the security deposit. You have to remember that the deposit is just a deposit, not an advance payment. If you miss a payment, the consequences are the same as with any other card. In addition, you need to have the money for the security deposit to apply for a secured credit card in the first place.
Co-signed credit cardsIf you have a friend or family member with good credit who's willing to put it on the line for you, you could ask them to co-sign your credit card application. Just like with a loan, if someone co-signs for you, their credit rating will be affected as well, and they may be asked to pay if you default.
- Positives: much better credit terms than you could get on your own.
- Negatives: you risk damaging not only your credit but also your relationship with the person you've asked to co-sign. Don't take offense if the person you ask says no. Meanwhile, unlike with co-signed loans, co-signed credit cards are relatively rare. You’ll have to ask around and do a bit more research than you would with the other kinds of credit cards.
Department store or gas station credit cards
- Positives: The credit cards offered directly by department stores and gas stations are often easier for people with bad credit to obtain than a Visa or MasterCard. Plus, you can rebuild your credit rating with regular on-time payment.
- Negatives: The card can usually only be used at that one department store or gas station. That might give you an incentive to shop there even when they don’t offer the best deal. If you never use the card, it won’t do very much to rebuild your credit rating. Also, department store and gas station cards are notorious for having high interest rates.
The Bottom LineTip: Investigate whether you are likely to be approved before applying, and choose carefully. Any rejected application may look bad on your credit report, and hurt your chances of getting credit somewhere else. Applying for more than one card at a time is also a bad idea—other credit issuers may worry that you’re overextending yourself.
Fortunately, the web makes it easy to research bad credit credit cards. Some credit card issuers’ websites will even have a checklist for you to see if you are likely to qualify, to save you from a potential rejection.