If you have a low credit score, it probably either means you’re just starting to build your credit as a young adult, or you’ve been unable to pay bills, been sent to collections, and your score has consequently taken a dive.
If you’re a young person, credit card companies are probably banging down your door to get you to sign up with them. If you’re in the latter situation, maybe not. But how can you still get a credit card when you have low credit?
After all, credit cards help you rebuild your credit, right?
Yes, but not necessarily. It takes careful budgeting, monitoring — and vigilance on both — to ensure you don’t just drag yourself further into debt.
Let’s review some of the key issues people with low credit face, what sort of credit cards you can get with bad credit, and other ways to rebuild your credit score.
- The Side Effects of Bad Credit
- What credit cards can I get with bad credit?
- Other Ways to Build — or Rebuild — Your Credit
- Can bankruptcy rebuild my credit?
The Side Effects of Bad Credit
“Bad” credit is different from “no” credit (just starting out with credit versus dings in your credit history). A low credit score, either way, indicates that you may be a risky lender. You need credit for things like buying a home, buying a car, and getting a credit card.
FICO Scores are the most common type of credit score and can range from 300 to 850. When you have a low credit score — 649 and below, in some circles — it can be difficult to get a line of credit. Or, if you do get credit, it may be more expensive. You’ll have sky-high interest rates, and it’ll take longer to pay off debt if you accumulate it. An endless cycle, really, for people with bad credit.
If you need a loan for any reason, it’s also harder to get one with low credit. Some loan providers, like Quicken Loans, require a minimum credit score of 620 for most loans. Many people who try to get a mortgage with credit scores lower than 580 will be getting a subprime loan, which can come with a hefty down payment and much higher rates.
Lenders will also look at your credit history — how often you missed your mortgage payment, for example — to determine if you qualify for a loan. To get a mortgage loan, you may have to pay off all collections and judgments before you can even proceed with a mortgage.
What credit cards can I get with bad credit?
Credit cards are a little bit different of a story than loans and other big-ticket items. Credit cards open an official line of credit, and when used correctly, can remain open without spending much money and at the same time, building your credit score.
You won’t want to open too many credit cards at once — it can be a red flag for lenders and will affect the length of your credit history, which is one factor in determining your score. You’ll also want to be sure when using credit cards to keep your credit utilization rate low. This means that you spend much less and keep much less debt on your cards than your credit limit. And always pay at least the minimum payment on time, every month.
Here are a few credit cards if you have low or bad credit, compiled from Experian, which will match you to the best credit cards based on your credit data. These are rated in general by lowest APR, but a few other good things to look for in a credit card are annual fees, if any, plus rewards offered like cash back from spending at certain types of merchants.
1. Platinum Prestige Mastercard Secured Credit Card
This credit card has a 9.99% APR and $49 annual fee through First Progress. There is no credit history or minimum credit score for approval. Your credit line is secured by a refundable deposit of $200 to $2,000, which is submitted with your application. Owners of the card will have their payments reported monthly to all three credit bureaus to help establish or re-establish their credit history.
2. Discover Secured Card
The nice part about this Discover card in addition to no annual fee is you’ll earn 2% cash back at restaurants and gas stations on up to $1,000 total spent each quarter. You can earn 1% cash back on all other purchases. The APR is 24.49% variable, so try to spend less on this card per month so you can pay your credit card bill in full while avoiding interest and building credit — and hopefully earning a little extra cash rewards.
3. Credit One Bank Platinum Visa for Building Credit
This is another one of the better cash-back credit cards out there that also helps you build credit, with 1% cash back on most purchases, including if you use it to pay for your utilities. You can also track your progress on improving your credit score with free access to your Experian credit score online. The annual fee is $0 to $99, and APR is 19.4%-25.49% variable.
4. Merrick Bank Secured Visa Card
Although this card has no rewards built in, it has a low annual fee of $36 and an 18.95% variable APR. Because it’s a secured card, you’ll also have your payments reported to all three major credit bureaus, and you can access your monthly FICO Score once per month for free. After one year secured, your account will be reviewed for unsecured credit line increases without an additional deposit required.
5. Total VISA Unsecured Credit Card
This card doesn’t have an upfront annual fee or APR, but anyone with poor to fair credit can apply and learn whether or not they were approved within seconds. You’ll pay a processing fee to access your account, and it’s required that you have a checking account. This card reports to the credit bureaus and is accepted where all Visa cards are used.
Other Ways to Build — or Rebuild — Your Credit
You may have noticed some of the credit card options above are secured. What does this mean? If you’re new to credit, such as a recent high school graduate, you can begin building your credit score by taking out a secured credit card, or rebuild your score if you’re someone with bad credit. This is a kind of card that you make a deposit toward, with the credit limit based on your deposit. If you miss a payment, it can just come out of your deposit, but if you make payments on time, it’s just doing good to build your credit history.
In 6 months to a year of on-time payments, you can usually then qualify to take out an unsecured credit card. An unsecured credit card is one in which the bank determines your credit limit and you don’t need to make deposits. You can also become an authorized user on your parents’ or spouse’s credit card, if they have good credit, to benefit off their on-time payments and ride the wave to a better credit score.
Be careful of paying your credit card and other bills on time. After 90 to 120 days, an account typically goes into collections. Although it can easily happen — for instance, you encounter medical bills that are difficult to keep up with, or you lose your job — this takes years to scrub from your credit history.
Can bankruptcy rebuild my credit?
Bankruptcy can be another option. If you’re someone who has missed several mortgage payments and is in danger of losing their home, for example, bankruptcy can help stop foreclosure. It also stops collection lawsuits, wage garnishments, and more. Despite its stigma (and yes, it also goes on your credit report for a few years), bankruptcy helps millions of people every year in the United States.
At National Bankruptcy Forum, we have member attorneys who are standing by ready to help review your financial situation and see if bankruptcy is right for you. If it’s not, they’ll suggest other ways to manage your debt and get back on track. Contact us today for a free consultation.
Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.