study by the credit bureau Experian, about 16% of consumers have bad credit, and more than a third of the population has what lenders call a subprime score, which includes the fair and poor categories.
Here’s how credit scores break down in the U.S.:
|Credit score||Rating||% of people||Impact|
|300-579||Poor||16%||Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.|
|580-669||Fair||18%||Applicants with scores in this range are considered to be subprime borrowers.|
|670-739||Good||21%||Only 8% of applicants in this score range are likely to become seriously delinquent in the future.|
|740-799||Very good||25%||Applicants with scores here are likely to receive better than average rates from lenders.|
|800-850||Exceptional||20%||Applicants with scores in this range are at the top of the list for the best rates from lenders.|
How do you get bad credit?
You can end up with bad credit in a variety of ways, including:
- Credit card or loan defaults – As you might expect, failing to pay off your credit card bills or pay back a loan – also known as defaulting – marks you as a clear credit risk to lenders.
- Late payments – Your payment history accounts for 35% of your credit score. If you’re late with your payments – be they credit cards, student loans or mortgages – your credit will take a big hit.
- Maxing out your cards – settle your debts, as an unpaid judgment is worse than a paid judgment.
What are the effects of bad credit?
You’ll face higher interest rates, trouble with credit and loan application approval, difficulty renting an apartment, higher insurance premiums and even trouble getting certain jobs.
What to look out for in a credit card for bad credit
With a proper amount of research and consideration, a credit card for bad credit can be a lifeline for rebuilding your credit. However, you need to do your research. Some credit cards for bad credit compensate for riskier lending with high APRs and harsh penalties. Especially if you’re inexperienced when it comes to credit, you should weigh the benefits against potential pitfalls.
Here are the key elements to keep in mind when evaluating credit cards for bad credit:
- Fees: Credit cards for people with bad credit tend to carry a lot of fees, so take note of any annual fees, program fees, inactive account fees, or any others. To find the info you need, take a look at the card’s rates and fees on the application page: Primary fees – late fee, foreign transaction, etc. – are shown at the top of the document (called the Schumer Box), but keep an eye out for lesser-known fees appearing further down in the text.
- APR: Cards for bad credit often bring along high interest rates and in an unfortunate situation – penalty APRs. As such, getting the lowest rate possible should be one of your top priorities if you know you’ll carry a balance.
- Minimum/maximum security deposit: If your card requires a deposit, check the range offered to see if it makes sense. Can you afford to tie up $1,000?
- Credit limit: You’ll want to be sure the card offers a limit that’s high enough to allow you to keep your credit utilization low.
- Be wary of targeted mailers: Watch out for mailings that target your situation. Banks have been found to send these disproportionally to people with less formal education.
How to get a credit card with bad credit
If you’ve made a few financial mistakes or don’t have a credit history, you may be wondering if it’s even possible for you to get accepted for a credit card. Fear not, because it is possible to get a credit card with bad credit. Here are a few steps you can take to increase your odds of approval.
Check your credit report
Before you begin browsing and applying, it’s important to know where you stand – you might be surprised. Maybe your credit score falls within the “fair” range instead of “poor,” which gives you a better selection of cards you’re likely to be approved for. Even if your credit is poor, knowing how close you are to having fair credit allows you to decide whether you should apply now or wait until you’ve given your credit a boost and have better options.
Since you can online, by phone or by mail.
Dispute any fraudulent or incorrect activity
If your credit score is surprisingly low, you may want to do some investigating. It’s possible that fraud or mistakes are wrongfully affecting your credit. If you’ve been a victim of fraud or if you find mistakes on your credit report, be sure to adverse action notice explaining why you were denied.
Here are some common reasons for denial and what you can do about them:
- Too much debt – Your balances are too high. Make a budget and pay more than the minimum each month to pay down your existing debt.
- Limited credit history – Wait a couple of months, then apply for a secured card designed for credit building. Within months, your score will improve with on-time payments.
- Low income – Next time, try a card that is not a premium product, but has the features you are looking for.
- Too many applications – Take a break from applying for cards for several months and focus on building your credit with a credit-builder loan.
- Too young – People under 21 must have an independent source of income to get a card, but you can be an ized user and still build credit
- Negative information on credit reports – Late payments or judgments, such as bankruptcies, take time to drop off your reports. Just pay on time and in full going forward.
- Score too low – If the issue is your credit score, you can look at a credit-builder loan at your credit union. About 1 in 5 credit unions offer credit-builder loans.
FAQ: Credit cards and bad credit
When you have a bad credit score and are looking for a new credit card, it can be tough to know where to begin. Check out these commonly asked questions to get a sense of which direction you should go.
Can you get a credit card with no bank account?
It will be very difficult to get a credit card without a bank account. Even most cards backed by a deposit require you to have a bank account. One exception is the OpenSky Secured Visa: You can pay your security deposit via money order or have someone send the issuer a check or transfer on your behalf.
Can you prequalify for a credit card with bad credit?
You certainly can, though not all issuers offer prequalification. Luckily, those that do typically determine who prequalifies for a card with a soft credit pull, which won’t impact your credit score. That said, your application can still be denied even after you’ve prequalified.
Credit cards for bad credit that offer prequalification include:
Can you get a credit card after bankruptcy?
Yes. Not only is it possible to find a credit card after bankruptcy, it’s a great way to get your credit back on track. To save time and protect your credit score, it’s best to only apply for credit cards designed for bad credit and rebuilding credit. Indeed, a few such cards explicitly state that previous bankruptcy is OK, including the Indigo Platinum Mastercard and the Milestone Gold Mastercard.
Secured vs. unsecured credit cards for bad credit
There are two main types of cards to consider when you’re looking for a credit card with bad credit: secured and unsecured cards. Both can be a useful tool in your credit-rebuilding efforts.
Secured credit cards
Secured cards require a refundable deposit, which is usually equal to your credit limit. With many cards, after 6-12 months of on-time payments, you should be able to get your deposit back and graduate to a traditional (unsecured) credit card with a higher limit.
Examples of secured credit cards for bad credit:
|Card||Credit Recommended||Annual Fee|
|Secured Mastercard® from Capital One||Limited/Bad Credit||$0|
|Discover it® Secured||Limited/Bad Credit||$0|
|First Progress Platinum Prestige Mastercard® Secured Credit Card||Bad Credit||$49|
|OpenSky Secured Visa Credit Card||No Credit Check||$35|
Unsecured credit cards
An unsecured credit card, as the name implies, offers an “unsecured” line of credit, so you won’t have to put down a security deposit to borrow money. You’re given a credit limit based on your creditworthiness and can borrow up to that amount. A high credit limit will also likely improve your credit score by helping your credit utilization.
Examples of unsecured credit cards for bad credit:
|Card||Credit Needed||Annual Fee|
|Total Visa Unsecured Credit Card||Bad/Fair Credit||See Terms|
|Credit One Bank Visa for Rebuilding Credit||Bad Credit||$0 – $99|
Can you do a balance transfer with bad credit?
It’s technically possible to do a balance transfer with bad credit, but it may not be practical. The only cards you’re likely to qualify for that allow balance transfers are secured cards, and it usually makes more sense to pay down a portion of your existing balance or wait until you’re eligible for better balance transfer cards.
Can you get blacklisted by a credit card company?
While there’s no official credit “blacklist,” if you’ve burned a credit card company in the past, they may be unlikely to offer you any new credit for years to come. Additionally, if you have a history of bounced checks or refusing to pay a negative balance at your bank, you could be flagged by ChexSystems, a consumer reporting agency that gathers reports of checking account misuse or fraud. Activity stays in a ChexSystems report for five years.
Can I use a store credit card to repair my bad credit?
A store credit card could be a solid bad credit option, offering a low entry barrier and a chance to build credit while you earn rewards at your favorite retailer.
Pros of using a store card for bad credit
- Qualifying for a store credit card is usually easier.
- You can build credit with responsible use.
- Store cards offer money-saving store rewards, perks and discounts.
- Store cards rarely charge an annual fee.
Cons of using a store card for bad credit
- Store cards tend to carry extremely high APRs.
- You could get stuck with deferred interest.
- Store cards are often “closed loop” cards.
- A store card could spark frivolous spending.
Bottom line: The best store credit card for bad credit is one that keeps you on track with your credit-building goals. To ensure good habits, pick a card tied to a store you visit frequently for everyday purchases.