You may be wondering if it is possible to get a credit card for bad credit. Having a credit card is so much more than just being able to buy things and pay for them later. A good credit score is essential to getting the credit you might need in the future i.e. a mortgage, car loan, personal loan or even an apartment lease. It also shows lenders that you can responsibly manage money and are likely to return whatever money they trust you with. Having bad credit can be really challenging when it comes to getting a new credit card. However, not all hope is lost! There are different options available for people with bad or limited credit. The trick is knowing which one is best suited for your situation and which will have the least impact on your score. Here are some tips for those who want a credit card for bad credit history.
| Score | Rating |
|---|---|
| 300 – 559 | Poor |
| 560 – 659 | Fair |
| 660 – 724 | Good |
| 725 – 759 | Very Good |
| 760+ | Excellent |
Check your credit score
If you want to improve your credit score then you should first know where you stand before applying for any type of card. You can do this by requesting your free credit report from one or all three credit bureaus. Your credit score is a three digit number that will determine if you are eligible for a credit card and what that card will look like. A credit score can range from 350-850, with 750 being the average. The higher the number, the better your chances of approval and the better the terms you’ll receive. If your score is below 630, you may want to consider not applying for a new card, especially since you’ll likely be offered a card with really high interest rates and low credit limits. If your score is above that mark and you feel you absolutely must get a credit card, there are ways to do it responsibly without hurting your credit score more.
Go with a secured card
A secured card, just like any other type of credit card, will report to all three credit bureaus and help you build a positive credit history. The difference between a secured card and a standard card is that the former requires a security deposit that is usually equal to your credit limit. You will be charged interest on the full amount of the credit card balance, just as you would with a standard card. You will also have to pay interest on the deposit, but the rate is usually much lower. When you have had the card for a few years and your credit score has improved, you can apply for a regular card or simply close your secured credit card account and get your deposit back. At that point, you will have built up a positive credit history, so lenders might be more willing to offer you a standard credit card.
Go with a Card that has a small introductory APR period
Credit cards that have a 0% Intro APR period can be useful even if you have good credit. They make it easier to manage your expenses while allowing you to get needed credit without having to pay an extremely high interest rate. You can make a large purchase, pay the card off in a few months, and save money on interest charges. It is critical, however, that you pay off the entire balance before the introductory period ends. If you don’t, you will likely be charged interest on the entire amount, and it will likely be at a very high rate as well. This strategy is best if you are planning to make a large purchase in the near future and are not able to save up the money to pay for it in full. This is a good option if you have poor credit or no credit at all and you need to get a credit card as soon as possible.
Apply for a traditional credit card
The best way to get a credit card when you have a low credit score is to apply for a traditional card. This means that you won’t be granted a lower credit line or a lower credit limit. You will be subject to the same terms and conditions as all other cardholders. This is the best strategy if you have bad credit and don’t plan on making a large purchase. It is also great if you have limited credit at this point, but you hope to eventually get a higher credit line as your credit improves.
Apply for a subprime card
If you have no credit or bad credit, you can apply for a subprime or secured credit card. These cards work in a similar fashion to secured credit cards in that they require you to put down a deposit (usually equal to the credit amount you are approved for) and are used to build your credit score. Unlike the secured credit card, however, the deposit is held in a trust account and can’t be used to make purchases. Subprime cards tend to be much more expensive than a secured card. They usually have high interest rates, low credit limits, and/or small monthly payments. The key with these cards is to keep using them until you have built up a good credit score. At that point, you can close the account, get your deposit back, and apply for a standard credit card.
Factors that Impact your Credit Score
If you are trying to improve your credit score then you have to understand what factors impact your credit score.
Payments
To maintain or improve your credit score it is very important to make timely payments. This shows lenders that you are responsible with your finances and are able to make payments against your debt.
Credit Utilization Ratio
Your credit utilization ratio is the amount of debt you have compared to your credit limit. It’s important to keep your credit utilization ratio low, because a high ratio can hurt your credit score. A good rule of thumb is to keep your credit utilization ratio below 30%. That means if your credit limit is $1,000, you shouldn’t have more than $300 in debt. You can calculate your credit utilization ratio by dividing your total credit card debt by your total credit limit. For example, if you have $500 in debt and a $1,000 credit limit, your credit utilization ratio is 50%. The lower your credit utilization ratio, the better it is for your credit score. So if you’re trying to improve your credit score, one of the best things you can do is to pay down your debt and increase your credit limit.
Age of Credit Accounts
Age of credit history has an impact on your credit score. Let’s say your credit history is only a couple of months old and you have made on-time payments over these two months, this doesn’t really provide a pattern of your financial history. You have to show your financial behaviour over a longer term to allow lenders determine if you are financially responsible.
This is why it is not always a good idea to constantly open new credit accounts as it impacts the age of your credit history. Credit bureaus are looking at the average age of your credit history.
Inquiries
Every time a lender checks your credit history it is noted on your credit report has an impact on your credit score.
Final Thoughts
Having a credit card can be extremely helpful when you want to make a large purchase, book travel, or just earn rewards. When you have good credit, you can get great rates and low monthly payments. Having a credit card is also a great way to build credit if you don’t have any other forms of credit. If you have had bad credit in the past, don’t worry! You can still get a credit card and build up your credit history. Just be sure to get the best card for your situation and always make your payments on time and remember there is a credit card for bad credit.
