Best credit cards for bad credit of December 2021
How to choose the best credit card for bad credit
Try to choose a card that can help build your credit and provide you with benefits now and in the future. You can narrow your list of suitors by asking yourself these questions:
- Will I be carrying a balance? Bad credit credit cards usually have high interest rates, which means the best way to use them is to always pay off your balance, if you can.
- Have I compared the rates and fees? Some – but not all – bad credit cards may charge high annual fees, one-time processing fees, monthly maintenance fees, and fees to increase your credit limit. Annual percentage rates will likely be high when you have bad credit because issuers base rates on creditworthiness.
- Does the card report payments to all three credit bureaus? If you want to use a secured card for building credit, first confirm that the issuer will report your payments to the bureaus.
- Can you upgrade the map? If you choose a secure card, verify that you can switch to an unsecured card. With an unsecured card, make sure the issuer reviews it for credit limit increases to help you build your credit score.
How to apply for a credit card with bad credit
A little prep work will be required when looking for a bad credit credit card. These steps can put the odds of approval in your favor:
1. Check your credit score. You can get it for free from your credit card issuer or bank, buy it from any of the major credit bureaus, or use a free or paid credit monitoring service. Before you apply, you’ll want to make sure the card matches your credit profile.
2. Improve your credit before you apply. Making payments on time and reducing card balances can improve your credit score. You may need to settle or pay collection accounts, consider working with a credit counselor, or stay patient until negative things disappear from your credit report. Fortunately, the effect of negative elements diminishes over time.
3. Apply for a credit card prequalification. Some issuers use the terms prequalification and pre-approval interchangeably, but both result in a smooth investigation that won’t hurt your credit score to see if you have a good chance of getting the card.
I was refused a new credit card. And now?
If your credit is so low that you cannot qualify for a credit card, you still have two options for using a card to replenish your credit.
Get a co-signer. A co-signer is someone with good credit who vouches for you on a credit application. By cosigning for a credit card, that person accepts responsibility for the bill if you don’t pay.
A co-signed account is risky because late payments also show up on the co-signer credit report as they would on any other account. This means that the account could hurt the co-signerâs credit rating and their ability to get new credit approved, in addition to damaging your relationship.
Become an authorized user, aka piggyback. Piggybacking is when you are added to another person’s credit card to help build or improve your credit. The authorized user is not the primary account holder, but inherits the account history, which can increase the user’s credit score if the history is positive.
Just make sure the card issuer reports authorized user activity to the three major credit bureaus, as not all of them do.
Even if you do not have access to a card, you can still benefit from the responsible use of the account holder. But the reverse is also true, as the cardholder could have a balance or miss payments.
Piggybacking has the same dangers as co-signing – that credit errors can damage both of your credit scores and strain your relationship. Keep in mind that the cardholder, who is responsible for all charges, is stuck with your part of the bill if you don’t stick to it and can remove you as an authorized user at any time.
How did you end up with bad credit and how does it affect you?
Bad credit can make credit difficult and expensive. The cards likely have high interest rates or annual fees, and you may be limited to secured cards that require a security deposit to open the line of credit.
Even if you have a bad credit rating, the approval of a bad credit card is not guaranteed. Card issuers will look at other factors, such as income and debt.
Your score is based on the scoring model, such as FICO or VantageScore, and the information in your credit report.
The most commonly used FICO scores are calculated from five categories of credit data:
- Payment history, or if you paid on time, represents 35% of your score.
- The amounts due, or credit utilization rate, are 30%.
- The length of the credit history is 15%.
- New credit, or how often you apply for and open accounts, is 10%.
- The credit mix, or the mix of cards, loans, and other products you have, is 10%.
VantageScore, on the other hand, assigns weights to four factors of your credit score:
- Total credit usage, balance and available credit are extremely influential.
- Credit mix and experience are very influential.
- Payment history is moderately influential.
- New accounts opened are less influential.
- The age of credit history has less influence.
How to improve your credit score
Focus on improving your payment history and credit usage, which makes up 65% of your FICO credit score. Here is what can help you:
1. Use your card for the most part. Save it for groceries and utility bills, for example, which are purchases you already make. It’s the best way to build or rebuild your credit with minimal impact on your budget.
2. Keep your total credit utilization rate below 30%. This means that you must use less than 30% of your available credit on each card. You can request credit limit increases every six months if your payment history is good, which won’t hurt your score and may improve your overall credit ratio if approved.
3. Pay your balance in full each month. Strive to use your card regularly, but avoid earning interest or maintaining a high credit usage rate.
4. Configure automatic payments. This is the best way to make sure you pay off your credit card balance on time every month. Late payments not only result in high fees, but also hurt your payment history, which accounts for 35% of your FICO score. Even missing a single card payment can hurt your credit rating.
5. Always apply rewards to your balance. This option allows you to reduce your balance by the amount of your rewards, much like a refund. This can help you keep your balance low to boost your credit score.
6. Use digital tools and apps to track your card spending. There are many personal finance apps that can help you manage your budget and your credit usage, and some paid include perks like monthly credit score monitoring. Some applications to consider:
7. Transition from secured credit to unsecured credit. Make sure your secure credit card can switch to an unsecured card after you use it and pay on time. Note: Many unsecured cards have much higher interest rates and annual fees than secured cards.
8. Avoid cash advances. You will pay a lump sum for each cash advance: typically 3-5% of the amount of the advance, with a minimum of $ 5-10. A cash advance has no grace period – interest begins accruing immediately – and the rate is up to 10% higher than the standard purchase APR.
9. Don’t close old accounts too quickly. When you have a better credit score and a better card, leave your old unsecured account open and use it occasionally.
What Cards Should You Avoid If You Have Bad Credit?
Some cards will do more harm than good and prevent consumers from building or replenishing their credit. If you have bad credit, avoid cards with these characteristics:
- Cards that are not reported to major credit bureaus. This will make building credit impossible.
- Cards with a number of additional charges. Look for account opening fees, program and participation fees, fees for additional cards, and other fees.
- Cards with high interest rates. If you have a balance on a high interest card, it can lead to debt.