Credit Cards for Bad Credit

A bad credit score is anything between 300 and 579. If your credit score is between these two numbers, you’ll likely have trouble accessing various lines of credit, either through loans or credit cards. The good news is that if you need a credit card and you have bad credit, you actually have a few options. 

Let’s talk about them. 

Secured Credit Cards for Bad Credit

A secured credit card is basically a trial-run credit card. Treat it right and lenders will consider you ready for an unsecured credit card after a few months of positive payment history.

To get a secured credit card, you must first make a cash deposit. The deposit is what secures the credit card, meaning should you not make payments, your lender isn’t out of any money. Because this card is geared to people with low to no credit, the size of the deposit is the card’s limit. Make a $500 deposit, and your credit card will have a $500 limit, and so forth.

Secured credit cards are great for people with bad credit because it allows them to build a positive history with credit. Each month, your on-time payments are reported to the three credit bureaus (TransUnion, Equifax, Experian), so over time a secured credit card can boost your credit score if you treat it responsibly. 

Who offers secured credit cards?

Secured credit cards aren’t hard to find. The important thing to keep in mind is that there’s no reason to settle even though you’re getting a secured credit card. You can still get cash back, points, or even travel miles on your purchases with select cards. Obviously, the better the card is, the harder it is to get, but decent secured credit cards do exist. If you’re at the higher end of a bad credit rating, go for the card with the most to offer you. 

Are there still fees with secured credit cards? 

It depends on the credit card. There’s not an industry standard when it comes to fees. Some credit cards don’t charge an annual or monthly fee, while others do. Annual fees are more common, and these tend to range from $29 to $49 a year for secured credit cards. 

What is the minimum deposit needed to open a secured credit card? Is there a maximum?

There’s not a universal minimum deposit requirement, but the norm is about $200. You can, of course, go higher, but that’s more of your own savings tied up in a secured account.

It’s the same thing with the maximum deposit. There’s not a norm, but the highest we’ve seen is $5,000. Of course, this means you’ll have to pay that amount first if you want your card to have that high of a balance.  

Are there still APRs with secured credit cards?

Yes, there are. You might think that because you’re technically just accessing your own money that there wouldn’t be an APR. Unfortunately, this isn’t the case. APRs for secured credit cards typically range from 9.99% to 26.99%. To avoid high-interest rates, you’ll want to be sure you pay off your card each month. Doing this, of course, will also have the added benefit of helping your credit score, too.  

How are unsecured credit cards different from prepaid debit cards?

Prepaid debit cards don’t report to the three credit bureaus so there isn’t any effect on your credit score when you use them. A prepaid debit isn’t much different from a debit card, when you think about it (you can even overdraw from some of them). 

Prepaid debit cards also don’t expect you to pay back any amount you spend. Basically they’re just an alternate way of having cash. Most people like to use them because it keeps them in line with their budget. 

If you’re looking for a way to improve your credit score, prepaid debit cards won’t help. 

When can you bump up to a normal credit card?

It depends on the bank issuing the secured credit card. Some will do it automatically after eight months of having a positive payment history. With others, you’ll have to make an official request. Some secured cards reward positive account history with a line increase, so even though you may have only put down $200 to open the account, the credit card may bump you up to $500 without even telling you. This helps your credit score even more because it lowers your credit utilization ratio (and you want this number to be low). 

If and when you do upgrade to a normal credit card and you close your secured credit card, you will get your initial deposit back. Moreover, if you took out the secured card through a bank or credit union, you may even get interest back. 

Secured credit cards are really a win-win scenario for borrowers with bad credit. The only downside is saving up for the initial deposit. After you are able to make that deposit, things get easier and easier. Just make sure to make your payments on time each month to avoid the high APRs.

Unsecured Credit Cards for Bad Credit

Unsecured credit cards are the opposite of secured credit cards. In fact, they’re what you think of when you think of a credit card: A line of credit with an interest rate attached. Therefore, the difference between unsecured credit cards and secured credit cards for bad credit borrowers is you don’t have to put down any money in order to secure and use the card (a big plus if your budget is already tight).

The catch with unsecured credit cards for bad credit borrowers is that there are often annual fees, late payment fees, and fewer rewards. Additionally, the APRs often approach 30%.  

There are numerous unsecured credit cards for bad credit borrowers on the market. If you’re only looking for one to build your credit score, we recommend you choose the one with the least amount of fees. There is no benefit to your score if the card comes with fees. The credit cards that help your credit score the most are the ones with the highest credit limits. The higher the limit, the lower your credit utilization will be if you pay it off each month. 

Another thing that is unusual with unsecured credit cards for borrowers with bad credit is that there is often a processing fee just to open the account (which is usually just charged directly on the card). Because these cards come with a small assortment of fees, it’s a good idea to log in and look at your balance each month. Don’t assume that just because you haven’t used the card that there isn’t a balance! 

Store Credit Cards for Bad Credit

Store credit cards are usually more lenient with credit score requirements than other major credit cards, so people with bad credit are often able to open store credit cards. This is a major plus because it’s a line of credit at a store you already shop. Additionally, store credit cards frequently give incentives to cardholders to use the card, be they in the form of discounts or cash rewards.

The downside to a store credit card is that it can only be used at that one store (FYI, in the credit industry, this type of card is called a closed-loop card). Sometimes there are exceptions, but not very often. So if you decide to take out a Kohl’s credit card, it can only be used at Kohl’s. 

Sometimes cardholders get around this by purchasing gift cards to other stores, but we don’t recommend this because it suggests you won’t have the cash to pay off the card at the end of the month. Only charge what you can afford to pay off, or else you’ll end up paying a high-interest rate over time.    

Are Credit Cards the Best Way to Improve Your Credit Score?

The golden rule of credit building is to never go into debt to strengthen your credit score. 

Credit cards aren’t debt. They’re lines of credit. Sometimes people will, unfortunately, take out a small personal loan they don’t need simply to improve their credit report and score. However, loans present too much risk. Should you fail to make payments on time, or be unable to pay back the loan, your score will lower even more. Plus you have to pay interest on top of the principal, which essentially boils down to the fact that you have to give the lender more than what you borrowed.    

The great thing about credit cards is that if you pay off the balance each month, your score improves, and you’re not out of any more money than you originally used. In this way, credit cards are one of the best ways to improve your credit score. The catch is you have to be responsible with them. If you’re not, they can just as easily hurt you as help you.