Best credit cards for bad credit of October 2020
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Information about you and your credit experiences, like your bill-paying history; the number, age, and types of accounts you have; outstanding debt; and collection actions is used to develop your credit score. If you have a long history of effectively managing your credit, you're likely to have a decent credit score, but if you've never used a credit card or have negative information on your credit report, such as a history of missing payments, you may struggle to secure a loan, rent an apartment, get a job, or qualify for good credit card offers.
- Capital One® Secured Mastercard® - Secured
- Credit One Bank® Unsecured Visa® with Cash Back Rewards - Unsecured
If your credit score needs improvement, responsibly using a credit card is a good way to help you build (or rebuild) your credit. While those with a low credit score might not yet be eligible for great rewards or cash-back credit card offers, there are a number of cards out there designed with low credit scores in mind. Below you'll find our expert's top picks for the best credit cards for bad credit.
If you don't know your credit score, sign up for a free credit score, credit report card, as well as a personal credit analysis with our preferred partner, Credit Sesame.
Why We Like It: Not only does this card come with some of the same benefits offered by some other Capital One credit cards requiring higher credit scores, like extended warranty, auto rental insurance, travel accident insurance, 24/7 travel and roadside assistance, and price protection, this no-annual-fee card also requires the lowest minimum security deposit out of all of the credit cards that we reviewed. You could qualify for an account with a deposit of just $49 (see below for details). Access to an authorized bank account is required to make your $49, $99 or $200 refundable security deposit.
The Bonus: Get access to a higher line of credit in as little as six months with no additional deposit needed.
The Annual Fee: $0, plus a security deposit of $49, $99 or $200 to establish your initial $200 credit line.
The Rewards: In addition to fraud coverage and 24/7 customer service, cardholders have access to extended warranty offers, auto rental insurance, travel accident insurance, 24/7 travel and roadside assistance, and price protection services.
- No foreign transaction fee.
- You’ll get some nice benefits with this card, including auto rental insurance, price protection and 24/7 roadside assistance.
- Get access to a higher credit line in as little as six months with no additional deposit needed.
- You'll want to try hard not to carry a balance as the ongoing APR rate (26.99% (Variable)) is a bit steep.
- This card doesn't offer rewards on purchases, but that's pretty standard for secured credit cards.
Read our full Capital One® Secured Mastercard® review..
Why We Like It: Like other cards on this list, this card also reports monthly to the three major credit bureaus, as well as provides online credit education and an e-newsletter to help cardholders proactively work on improving credit. Plus, it also offers a worry-free application that doesn't require a credit check, so you don't have to worry about your application affecting your credit score.
The Annual Fee: $35, plus a minimum security deposit of $200.
The Rewards: There are no specific rewards with this card, but consider the "rewards" to be your chance to use the card responsibly and qualify for a traditional rewards card in the future.
- There’s no credit check needed as part of the application process, so applying for this card should be quick and easy.
- OpenSky provides credit tips and a dedicated credit education page on their website to support you as you work on your credit.
- You can add authorized users to the card – with no authorization fee. And the purchases from the authorized users, if they use the card responsibly, may help you build your credit.
- There are no perks or rewards offered with this card.
- This card charges an annual fee, in addition to the necessary security deposit to establish your line of credit.
Read our full OpenSky® Secured Visa® Credit Card review.
(This card is not currently available on CardRatings)
Why We Like It: Why not earn a little while working on rebuilding your credit? Not only does this card report to the three major credit bureaus and include your FICO credit score on your monthly statements, but this no-annual-fee card will also allow you to earn cash back on your purchases. AND, Discover will automatically match all the cash back you've earned at the end of your first year, which is a great perk for even the best rewards cards!
The Bonus: Discover will automatically match all the cash back you've earned at the end of your first year.
The Annual Fee: See Terms. A security deposit of at least $200 will be required to establish your line of credit.
The Rewards: Earn 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter; additionally, earn 1% back on all your other purchases.
- A secured card that earns rewards is rare. The fact that this secured credit card offers cash back on purchases is great.
- It's also unusual for a secured credit card to offer a welcome bonus to new cardholders. The match offer Discover offers is unique and has the potential to pay off big.
- This card doesn't charge foreign transaction fees so it's safe to travel abroad with.
- While there's no annual fee, the minimum security deposit amount could be a stretch for some people.
- Rewards are capped when you hit $1,000 in spending each quarter. Still, that’s a very minor quibble given that many secured credit cards don’t offer rewards.
Read our full Discover it® Secured review.
(This card is not currently available on CardRatings)
Why We Like It: When working on your credit it's nice to know that your card comes along with some protection perks. In addition to Citi Identity Theft Solutions, which helps you resolve cases of fraud, this card also offers $0 liability on unauthorized charges. Citi is a CardRatings editor.
The Annual Fee: $0. A minimum security deposit of $200 is required to establish your line of credit.
The Rewards: Again, no traditional rewards with this card, but the fraud resolution with Citi Identity Theft Solutions and $0 liability on unauthorized charges are a nice comfort, especially for a secured card.
- After successfully paying off your credit card five times in a row, you'll get access to a bigger credit line– and with no extra deposit needed.
- You'll get free credit score updates any time your TransUnion or Experian credit reports changes.
- With Flexible Payment Due Dates you can choose any available due date in the beginning, middle or end of the month allowing you some control on when your balance is due.
- There are no rewards and not a lot of benefits, but that’s to be expected with a secured credit card.
- This card charges foreign transaction fees so it's not a good one to take abroad with you.
Read our full Citi® Secured Mastercard® review.
(This card is not currently available on CardRatings)
Why We Like It: The right credit card used responsibly is a great early step in building your credit, but sometimes you can't even get to that step. With this card, all credit types are invited to apply and the low fixed APR on purchases could go a long way to helping you stay out of interest debt.
The Annual Fee: $49, plus a security deposit of at least $200 (fully refundable) and as much as $5,000 to establish your credit line.
The Rewards: Reporting to the three major credit bureaus and access to a low fixed APR of just 9.99% (F) on purchases could be considered reward enough.
- The 9.99% (F) APR is quite competitive. Granted, you still don’t want to carry a balance, but if you do, at least it isn’t in the 20’s, the way some credit cards are.
- As you would expect, this card reports to the three major credit bureaus.
- There isn't a 24-hour customer service line with Green Dot, the way many credit cards have. You'll need to talk to anyone between 9 a.m. and 9 p.m., Eastern time, Monday through Friday. If your credit card is stolen, though, you can call Visa any time.
- This card charges foreign transaction fees so it's not great for international travel.
Read our full Green Dot primor® Visa® Gold Secured Credit Card review.
(This card is not currently available on CardRatings)
Why We Like It: Instead of paying a refundable deposit to set your line of credit like the other mentioned secured credit cards, this card lets you determine your own credit limit ($250 to $5,000) by opening a two-year certificate of deposit (CD), with the balance of your CD being your credit limit. The benefit of this is that you can earn variable interest on the balance of the CD, which is a nice way to earn a little cash back while working on your credit.
The Bonus: Earn variable interest on the balance of the CD.
The Annual Fee: $35, plus a minimum security deposit of $250 to establish your line of credit.
The Rewards: USAA membership is required (which is available to active and former military and their eligible family members) -- but you'll enjoy no foreign transaction fees, collision waiver damage protection and identify theft resolution services in addition to that interest accruing on your security deposit. Not bad for a card designed primarily to help you build/rebuild your credit.
- You can bring this card anywhere in the world and feel good about it, thanks to not having a foreign transaction fee.
- Some nice perks come with this card, such as travel and emergency assistance and travel accident insurance.
- You can use this card with Apple Pay.
- The balance transfer fee is 3%, which is normal, but it’s something to be aware of. Given that your credit limit will probably be pretty low starting off, and you’re probably trying to build credit, it’s probably not a card you want to use for balance transfers, anyway.
- USAA membership is required (which is available to active and former military and their eligible family members).
Read our full USAA® Secured Visa Platinum® Card review..
Why We Like It: If you, like so many people, get anxious waiting on card approval, this card might be for you. You can find out if you're approved for the card in less than a minute, without affecting your credit score. Plus, this card offers free credit score tracking and 1% cash back on eligible purchases.
The Annual Fee: $0 - $99
The Rewards: In addition to free credit score tracking and fraud liability protection against unauthorized charges, cardholders can earn 1% cash back on eligible purchases like gas, groceries and dining out.
- Checking to see if you're prequalified for this card will have no effect on your credit score.
- The card allows you to choose over 20 different card designs, which is pretty cool (but a fee may apply, which is less cool).
- Credit One Bank will periodically check and assess whether they can raise the limit. So if you start off with a low credit limit, that may not last for too long.
- There's an authorized user fee of $19 a year, and so if you have several family members on this card, that will reduce your available credit.
- No welcome bonus, but that's normal for an unsecured credit card.
Why We Like It: Another good option for those looking for an immediate answer about approval (without worrying about a denied application hurting your credit score), this card can help you work toward better credit while also providing you with great benefits such as MasterRental insurance, extended warranty coverage and travel assistance benefits.
The Annual Fee: $35 - $99 (Dependent on credit worthiness).
The Rewards: Once again, there are no traditional rewards, but you can build your credit while enjoying the benefits of MasterRental insurance, extended warranty coverage and travel assistance.
- You’re sure to appreciate the card’s identity theft protection. You’ll get identity theft alerts, which informs consumers if MasterCard® believes thieves are buying and selling your personal information online. And if that does happen, you have zero liability protection.
- Some nice benefits come with this card such as extended warranty coverage, price protection and emergency roadside assistance.
- The 24.90% APR is fairly steep, so you'll want to avoid carrying a balance.
- There is no ability to do a balance transfer, which is probably fine for most people who are interested in this card. But, still, important to know.
Read our full Milestone® Unsecured Mastercard® review.
WHAT IS THE BEST CREDIT CARD FOR BAD CREDIT?
The best credit cards for bad credit aren't meant to be too exciting, as they're designed to help you rebuild your credit, afterall; however, the Capital One® Secured Mastercard® regularly sticks out to us thanks to a low security deposit requirement, and some of the same great benefits offered by more lucrative Captal One credit cards such as extended warranty, auto rental insurance, travel accident insurance, 24/7 travel and roadside assistance, and price protection. Plus, with this card you can gain access to a higher line of credit in as little of six months, with no additional deposit required.
When it comes down to it though, the important thing about the credit cards on this list is that they're all designed to help you build better credit, so if you have bad credit, they're all good cards. If your credit is great, you might not find these options too appealing, but if you're searching for the best credit card for bad credit, the options on this list are an ideal place to start. The most important things to consider will be the annual fees and security deposit requirements. If a card has any added perks, that's just the cherry on top. Be sure to not get distracted by extra features though. Remember, the point of these cards is to help you build your credit. Once you do so, you can have fun shopping for cards offering more bells and whistles. You worked hard to build your credit, so you deserve it, afterall!
CAN I GET A CREDIT CARD WITH BAD CREDIT?
Yes, although your options may be limited.
Since those with bad credit often have a history of missed payments, delinquent accounts or even bankruptcy, some credit card issuers are hesitant to open accounts for those with low credit scores.
Fortunately, not all card issuers feel this way. Some understand that people go through difficult times, for whatever reason, and deserve a fresh start on their finances. In fact, companies like Citi and Capital One have cards specifically designed for those with bad credit.
In most cases, credit cards for those with bad credit are secured cards. These cards typically require a deposit that is equal to the amount of your credit limit. Then, if you fail to pay back what you owe, the card issuer can keep the deposit to pay off the debt.
Some cards will increase your limit beyond your initial deposit amount so long as you are making on-time payments. For instance, the Capital One® Secured Mastercard® will increase the credit limit of cardholders after they make their first five payments on-time.
There are also unsecured credit cards for those with bad credit. These cards don't charge a deposit, but they may come with an annual fee. Both the Milestone® Unsecured Mastercard® and Credit One Bank® Unsecured Visa® with Cash Back Rewards charge an annual fee that could be as much as $99 per year. However, lower annual fees may be available for those with better credit.
Regardless of whether you receive a secured or unsecured card, be prepared to pay a high interest rate. Credit cards for bad credit can have APRs that are nearly 26% or more. At that rate, you don't want to be carrying a balance. It's always best to only charge what you can afford to pay off each month. Doing so will also help your credit score improve and make you eligible for lower interest rate cards in the future.
HOW DO YOU GET BAD CREDIT?
Before talking about what causes bad credit, it's helpful to know how bad credit is defined.
There are two main credit scoring systems used today: FICO and VantageScore. FICO scores, which tend to be used more often in lending decisions, range from 300-850. Anything below 580 is generally considered a poor score, and about 16% of consumers have bad credit scores on the FICO scale, according to the credit reporting company Experian.
VantageScore also runs on a scale of 300-850. Scores ranging from 500-600 are considered poor and those below 500 are very poor. Experian notes 21% of consumers have poor VantageScore credit scores while 5% fall into the very poor category. Those with very poor scores are especially likely to have difficulty being approved for a credit card.
Now that we know what constitutes bad credit, let's discuss how someone's score ends up in the poor category. Since FICO scores are used more often, we'll focus on their scoring model.
According to myFICO, the official consumer division of FICO, the following criteria is used to calculate credit scores:
- Payment history - 35%
- Amounts owed - 30%
- Length of credit history - 15%
- New credit - 10%
- Credit mix (types of accounts) - 10%
This means two-thirds of your score is based on two factors: if you pay your bill on time and how much you owe.
While there is nothing you can do to erase old missed payments, you can boost your score by ensuring any future debt payments you make are on time. Making regular payments and avoiding any future charges or loans will also bring down the overall amount of debt you owe. That also will help raise your score.
Creditors aren't only looking at the total amount you owe, but also how much of your available credit lines you are using. This is known as a credit utilization rate or ratio. A low credit utilization rate helps boost your score. It indicates that you are being responsible about using your credit and aren't overextended financially.
However, maxed out credit cards and lines of credit result in a high credit utilization rate. That's a red flag to companies which may worry you're in financial distress or at risk of being unable to pay back what you owe.
If you already have a line of credit that is near its limit, focus on paying down that debt as quickly as you can. Using no more than 30% of your available credit is ideal, according to Experian.
Unfortunately, there is no quick fix to clean up bad credit. However, a secured or unsecured credit card for those with bad credit can help. Only charge what you can afford to pay off and make on-time payments each month to watch your credit score rise.
SECURED VS. UNSECURED CREDIT CARDS
A little different than traditional credit cards, many of the cards on the list above are "secured cards" that require a refundable deposit in order for you to qualify. Most of the time, the structuring is easy. The higher the deposit you put down, the higher the line of credit. If you put down a $500 deposit, you then have a $500 line of credit. It's as easy as that.
Sometimes a card will have a limit on how much of a deposit you can put down, but almost always, there will be a minimum deposit amount; usually around $200 (but not always that high).
You can generally add to your deposit to increase your line of credit (within limitations), and sometimes, as with the Capital One® Secured Mastercard®, you can be considered for a higher credit line just for making payments on time, with no additional deposit needed.
Whether secured or unsecured, most of these cards offer credit building tips, credit score tracking and reporting to the three major credit bureaus, so with responsible spending and bill paying, you could be on the road to a higher credit score (or a more rewarding credit card) in no time!
Disclaimer: The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.
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