People with bad credit often feel like they have gotten themselves stuck in a cycle that’s impossible to escape. Fortunately, the best credit cards for bad credit are designed specifically to help people with poor credit get on better financial footing.
If you have a bad credit score, whether for having a history of late payments, a high debt load or bankruptcy, you’ll have a difficult time getting approved for a credit card. But without a credit card, your credit score is likely to remain low. It seems like a catch 22.
What is Bad Credit?
If your credit score is under 580 (out of a range of 300 to 850), your credit is considered “very poor.” About 16% of people have “bad credit” under that definition, according to Experian. However, even people with higher credit scores than 580 can have trouble getting approved.
How Secured Credit Cards Work
People with poor credit history typically cannot get approved for the average credit card, especially those with lower interest rates. However, credit cards with high interest rates can often work against you, pushing you deeper into debt with higher interest payments.
Credit cards that cater to people with lower credit scores, or secured cards, offer an alternative. They work more like a debit card, but they help you build credit history. These credit cards can report your timely payments to credit bureaus, which can help boost your score. Timely payments can prove you are more worthy of a loan.
Secured cards require you to make a down payment. For example, you may put down $200. Then, your credit line is considered that amount. So, essentially, you can spend up to $200 on your secured credit card.
Then, the money that you spent is considered your balance. You must make a payment at the end of the month. If you don’t pay in full, then the balance is subject to an APR, or interest rate. If you do pay your full balance, then you have $200 to spend again.
Some secured cards even offer benefits like a certain percentage of cash back rewards.
Here are several credit card options for people with a poor credit history:
7 Best Credit Cards for Bad Credit
- Discover it Secured Credit Card
- Citi Secured MasterCard
- OpenSky Secured Visa Credit Card
- Credit One Bank Platinum Visa for Rebuilding Credit
- Green Dot Visa
- Milestone Gold MasterCard
- Capital One Secured MasterCard
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The Bottom Line
A secured credit card for bad credit is a very helpful tool for helping you rebuild your credit. In fact, it can be one of the fastest ways to help you re-establish yourself. After all, your bill payment history makes up about 35% of your credit score, or FICO score, and the length of your credit history makes up about 15%.
When comparing secured credit cards, be sure to factor in the APR. If you carry a balance from month to month, a higher APR will mean your interest payments will be higher.
It’s never a good idea to apply for multiple credit cards at once. That damages your credit score because it appears you are desperate for credit, and therefore a less trustworthy borrower.
Many secured cards will approve you even if you have a bankruptcy on your credit history. But take advantage of a pre-approval process, which does not impact your credit score. If you are pre-approved, you can have more confidence in going forward with an official application.
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