Choosing the right credit card can be difficult, especially if you have poor credit (FICO scores of 629 or lower) or are new to credit cards entirely. Plenty of cards can help those with limited choices, but some options — including certain unsecured credit cards for bad credit — are more costly and potentially more perilous than others.
These “subprime specialist issuer” cards, as they’re often referred to, might be easier to qualify for, but they typically come with soaring rates and unnecessary fees that make them quite expensive to carry.
To end up with the right card in your wallet, it's important to steer clear of predatory options. Here are five red flags to look out for.
1. Excessive fees An annual fee on a credit card may not be ideal, but it doesn't necessarily qualify as excessive. In fact, if you have poor or thin credit or are unbanked, a card with an annual fee may be your best and only option. Annual fees can also be worth paying if the card offers ongoing rewards, perks or other incentives to offset it.
Still, the yearly cost of holding onto a card shouldn't be outlandish. Many decent credit cards for poor credit offer a relatively low and manageable annual fee, often $50 or below.
But annual fees aren't the only costs you can incur. Many so-called fee-harvester cards feature charges that can sneak up on unknowing consumers. Examples include application fees, activation and processing fees, and monthly maintenance or membership charges. These fees are often unnecessary and avoidable, but they are common on some unsecured credit cards for bad credit — meaning cards that don't require a security deposit as collateral.
Before deciding on a card, be sure to read its terms and conditions so that you’re aware of what fees you may face.
2. Exorbitant interest rates If you don't carry a balance month to month, then a credit card's interest rate is irrelevant; you'll never owe any interest. But financial hardship and other factors can make it necessary to carry debt, which can be convenient but expensive.
As of May 2021, the average annual percentage rate for cards that accrued interest was 16.30%, according to the Federal Reserve. The rate you'll be charged will depend on your creditworthiness, which indicates to the card issuer the amount of risk it is taking by extending you credit.
Generally speaking, the lower your credit scores, the higher your APR will be. But some credit cards for poor credit charge APRs that are truly dizzying, sometimes up to 30% or more.
3. Low credit limits Some starter credit cards or unsecured credit cards for bad credit will advertise a credit limit range. The limit you qualify for will depend on your creditworthiness, but it's worth understanding how a low credit limit can hamper you.
For starters, if the card also charges an annual fee, that often means you'll need to subtract that amount to determine your actual credit limit. For instance, if you're approved for a credit limit of $300 on a card with an annual fee of $50, then your initial credit limit is really $250 until you pay that fee. Essentially, you're in debt immediately, and you've lost about 17% of your credit limit before you even use the card for the first time.
A low credit limit can also have implications for your credit utilization ratio, which is a significant factor in your credit scores. Credit utilization is the amount you owe as a percentage of your available credit. So if you have a $1,000 credit limit and a $500 balance on the card, your credit utilization is 50%.
A typical recommendation is that you keep your credit utilization below 30%. But in general, the lower that percentage, the better for your credit scores.
And lastly, if the card earns rewards, a low spending limit means a low limit on how much in rewards you can rack up.
4. Partial credit reporting For building credit, you’ll ideally want a card that reports to all three major credit bureaus — Equifax, Experian and TransUnion. These bureaus compile the credit reports that form the basis of your credit scores.
Cards with incomplete credit reporting can be problematic because you won't necessarily know from which bureau a future lender might be pulling your credit report.
For example, if a lender pulls reports from TransUnion, but your card reports only to Equifax and Experian, then the lender may not be able to see your credit activity.
5. No upgrade path If you use your secured or starter card responsibly, it can strengthen your credit. At that point, you may be looking to transition to a credit card with better terms, richer rewards or more generous perks. To that end, it's preferable if your existing card makes that an easy process.
The best credit cards for poor credit — primarily secured cards — typically offer upgrade paths, either automatically (with responsible card use) or upon request.
This means you may eventually qualify to "graduate" to a better card within that issuer's family of products without having to close your existing account. And if your account is in good standing when you upgrade, you’ll get your deposit back.
Cards that don’t offer a path to upgrade can still be useful. But in the long run, you'll be stuck with a product that you've outgrown, which can be particularly costly if you're paying an annual fee. While you can choose to close the card outright, doing so can negatively impact your credit scores.
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Nov 17, 2021
There are two types of credit cards that you can get with a poor credit score: secured credit cards and unsecured credit cards for people with bad credit. Both types report account information to the major credit bureaus each month, which means either can help you rebuild your credit if used responsibly. But they’re far from equal in terms of accessibility and cost.
Secured cards are the easiest credit cards for anyone to get, offering good approval odds even to people with bad credit. Some don’t even check applicants’ credit history, which means there’s no hard pull to hurt your score more. Secured cards also charge much lower fees than unsecured cards for bad credit.
All of that, from the good approval odds to the low fees, is thanks to the fact that you have to place a refundable security deposit to get a secured credit card. The amount of this deposit, which you typically have to place when you apply, usually serves as your spending limit. This prevents you from spending more than the card’s issuer knows for sure you can afford to repay. And without the risk of being left with an unpaid balance, the issuer can afford to approve more people as well as offer more attractive terms.
Now that you know the lay of the land, the path to plastic despite poor credit should be clear. But for your convenience, we’ll lay out step-by-step instructions below.
How to get a credit card with bad credit:
Getting a credit card with bad credit can be tricky. But it’s crucial to open an account as soon as possible in order to begin repairing your credit reputation. A secured card allows you to do that. And it has the added benefit of helping you avoid being rejected repeatedly, which would only make matters worse.
You won’t have much of a selection when shopping for an unsecured card with bad credit, unfortunately. You won’t get too much extra spending power, either, because high fees will initially consume much of your credit line. But it’s definitely possible to get approved for such a card. Just compare your options and double-check the eligibility requirements in their terms and conditions to make sure nothing in your background rules you out.
So, to recap, a secured credit card is your best bet if getting approved and beginning to rebuild your credit as soon as possible is your top priority. But if you need an emergency loan, you’ll have to make do with a costly unsecured card for bad credit.
Citations:John S Kiernan@John • 11/23/21
1. Open a Card with a 0% Promotional APR Hundreds of credit cards are available to consumers today, and if you’re in the market, you likely have more options than ever before. This competition among issuers for your business means they must sweeten the pot if they’re going to get you to apply.
One way they do this is through signup bonuses and promotional offers. One such offer is an extended interest-free period for new cardholders. Some cards offer six months of purchases with a 0% APR and others will extend the promotional period as long as 18 months.
These cards provide a great way to make a large purchase that you’ll need time to pay off because you’ll only owe what you charge to your card — with no extra fees that make it harder to pay off.
Many rewards credit cards also feature extended promotional APR periods — meaning you can still earn rewards while you avoid accruing interest charges on your balance. Our top cards with a 0% APR introductory period offer the best of both worlds.
Before you go on an interest-free shopping spree, be sure to fully read and understand your credit card’s rules surrounding the introductory period. Some card issuers start charging interest based on your card’s balance on the day your introductory period ends.
Others charge interest on the total amount of money you charged during the period — and continue to charge it until you pay your card’s balance in full. Either option can quickly weigh down your wallet, so be sure you pay your balance in full before your introductory period ends.
Otherwise, you’ll negate the interest-free savings by paying hefty fees further down the road.
2. Transfer Your High-Interest Debt to a 0% Card If you’re carrying debt on a credit card from month to month, you’ve likely seen those interest charges eat away at your monthly payments — continuing a vicious cycle of never-ending payments that’s hard to break.
But a good balance transfer card can remove the burden of high-interest debt for a period of time. This gives you an opportunity to chip away at your principal and not spin your tires in an interest mud puddle.
Many credit cards today offer introductory offers that provide 0% interest on balance transfers for between six and 18 months. You typically have to initiate the balance transfer within a certain time frame — typically within three months of opening your card — to take advantage of the offer.
These offers can provide a tremendous amount of relief, as your total monthly payment will be dedicated to eliminating your balance, not interest charges. You’ll no longer see those depressing interest fees hit your statement each month, but you may be subject to a balance transfer fee of between 3% and 5% of the transferred balance.
Our top balance transfer credit cards give you extended repayment periods and flexible terms for any balance transfer you initiate.
While you won’t earn cash back, points, miles, or other rewards on balance transfers, you could reap a far greater benefit — less debt. Just make sure you pay off your transferred balance before the interest-free period ends. Otherwise, you’ll just shift debt from one card to the other.
Another common pitfall that consumers fall into is charging new debt to the card you pay off using the balance transfer. Once you’ve cleared the high-interest card, you should put that card away and use it only in case of emergency, or cancel the card altogether if it makes sense to do so.
3. Pay Your Balance within the Grace Period Contrary to popular belief, credit card issuers don’t start charging you interest as soon as you use your card to make a purchase. In fact, they’re legally bound to withhold interest charges for several days after you complete your purchase.
Under the Federal Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (or the CARD Act of 2009), you have at least 21 days to pay your bill without incurring finance charges, known as the grace period.
Every credit card issuer must deliver your bill to you — whether by mail or electronically — at least 21 days before your next payment is due. Under your grace period, you have at least 21 days from the time you receive your bill to pay off the new balance.
If you do so, you’ll never pay a finance charge. You can find the details of your credit card grace period in your billing statement.
Starting on day 22, though, your issuing bank can — and will — start applying interest charges to your balance. That’s why it’s important to never charge a purchase to your credit card you can’t afford to pay off within three weeks. This will save you the money you’d otherwise pay to the issuing bank in interest.
Even if you cannot pay the entire balance within 21 days, you should always try to make some sort of payment within that time frame. Once a purchase enters day 22 on your card, you’ll start accruing finance charges on that current balance. The lower your balance, the lower the interest charges.
Best of all, you’ll continue to earn rewards from your credit card. One reason rewards cards have high APRs is to offset the cost of the rewards the issuing banks dole out every day. So, when you’re not paying interest, you’re not paying for your rewards.