Our reviewers evaluate products and services based on unbiased research. Top Consumer Reviews may earn money when you click on a link. Learn more about our process.

The Best Credit Cards for People with Bad Credit

Monday, September 26th

What Are the Best Credit Cards for People with Bad Credit?

People with bad credit - or limited/no credit history at all - can still qualify for a credit card. These cards may have higher interest rates than a traditional credit card, or they may require the user to put down a deposit to "secure" the card against any purchases that are made. But, used appropriately, "bad credit" credit cards can be an excellent way to slowly build up a good credit score while getting the convenience of making purchases the same as with any other type of credit card.

In today's society, it's hard to get by without a credit card. From renting a car to shopping online, credit cards are used for everyday purchases and major expenses like home remodeling and big vacations.

But, for people with bad credit - or those who have limited-to-no credit history at all - it can be difficult to get approved for a credit card. Many banks and other financial institutions want their cardholders to have a good credit history - because those businesses don't want to lose money when customers don't pay!

The good news? If you have bad credit, you can still get a credit card. Here's what you need to know.

Secured vs. Unsecured Credit Cards

Because you're considered a riskier customer than someone with a high credit score, credit card companies use two strategies to reduce their risk when giving you a card: secured cards that require a deposit, and unsecured cards with much higher interest rates.

A secured card means that you'll have to deposit money with the credit card company - usually somewhere between $100 and $1000, depending on the card issuer and your personal preference. The amount of that deposit usually becomes your credit limit on that card, but it isn't used to actually pay off your monthly spending on the card. Instead, it's used as collateral, in case you don't make a payment. The good news is that once you've used that card responsibly for a while - several months to a year, also depending on the terms of the card issuer - you'll get that deposit back. And, the financial institution will probably offer you a traditional credit card with a higher spending limit, now that you're on your way to building healthy money habits.

An unsecured credit card doesn't have a deposit requirement. But, if you opt for this type of card for people with bad credit, expect higher interest rates and other fees. After all, the bank has to make money somehow, and if they think you're likely to bail and not pay off your balance eventually, this is how they do it. Store credit cards (like those offered by big-box electronics stores or clothing retailers) are usually in this category, but you can't typically use these cards at other places; their spending limits are often low and interest rates are high.

Considering a Credit Card for Bad Credit?

So, you've decided that a credit card would be a good strategy for improving your credit score and helping make the purchases you need. You're probably right!

But, as you consider all of the cards out there, don't be persuaded by slick marketing or pressure tactics that might stick you with a credit card that hurts you more than it helps you financially. Here are some of the criteria to keep in mind as you choose the right credit card for your situation:

  • Interest Rates. If you're going to carry a balance from one month to the next, interest fees can add up quickly. Look for cards with fees of 15% APR or less, and watch out for cards with variable interest rates.
  • Annual Fees. Low interest rates often come with higher annual fees. Be aware of any annual fees your card issuer may charge.
  • Required Deposits. Remember that secured cards expect that you'll deposit the amount of money you want as your spending limit. So, to have a credit card with a $500 credit limit, you'll need to have that amount of money to deposit - and probably a bank account from which you'll transfer the funds to the credit card company.
  • Tools and Resources. The best credit cards for bad credit give you the help you need to improve your score and financial habits. Make sure that the card you choose gives you free updates to your credit score, so that you know how you're doing. Other helpful resources that might be available are financial consultants via phone or live chat, easy upgrades to traditional credit cards after using the card responsibly, and more.

TopConsumerReviews.com has partnered with Lending Tree to help you find the best credit cards for people with bad credit. We hope this information will tell you everything you need to know to pick the perfect card for your financial situation!

The Best Credit Cards for People with Bad Credit Compare Credit Cards for People with Bad Credit Compare  Reviews What are the best Credit Cards for People with Bad Credit Best  Reviews

FAQ

Yes. There are credit card offers specifically for people whose credit score is less-than-exemplary (like 600 or lower).
Yes. If you're just turning 18 or haven't established a credit history, it can be hard to qualify for a traditional credit card or other types of lending. There are cards designed to help you build up a good credit score, which in turn will probably qualify you for some of the more desirable types of credit cards (rewards programs, lower interest rates, and so on).
Have you ever tried to rent a car with cash? It usually can't be done. Having a credit card is a tool used for much more than just buying things and paying later. Plus, responsible use of a credit card can actually help you rebuild your score, as you make on-time payments regularly and hopefully pay your balance in full more often than not.
It depends on the type of card you choose and the bank that issues it. You'll find secured cards with spending limits as low as $100 or as high as $1,000, and unsecured credit cards with limits of $3,000 or more.
A secured credit card requires you to make a deposit and then sets your credit limit at the same amount as that deposit. However, your monthly payments still have to be made: they don't deduct your charges from that deposit, because it's used to guarantee that those funds are actually available instead of paying it off. A secured credit card is typically used for several months to a year; when you've shown responsibility in making on-time payments and not maxing out your card, the issuer will return your deposit and might even make you an offer on an unsecured card with a higher spending limit.
Not at all. Because credit cards are so necessary in our society, banks try to make them available to all consumers regardless of credit history. But, because someone with bad credit is a riskier customer, they often have much stricter terms and conditions as well as higher interest rates.
Because the banks are taking a risk in giving you a credit card, they usually make up for it with higher-than-average interest rates. Expect an APR of at least 20%, though some may offer lower rates.
Yes, most of the time. Annual fees are usually around $50-$100. If you're using a secured card, however, it's easier to find a credit card with no annual fees.

Rebuilding Your Credit with Credit Cards

Sworn off credit cards due to irresponsible spending? Don't act too fast! You may be in denial if you think you can manage without a credit card. Access to a Visa or MasterCard is necessary for renting cars, shopping online and even holding reservations at certain restaurants. Thankfully, credit cards may have gotten you into debt but can also help get you out. Here's how to improve your credit score with credit cards:

  • The first step to improving your credit score is to understand how the three credit bureaus report your financial activity. Periodically, your credit card, mortgage, car loan, and other companies will report your good and bad credit activity - much like a report card. If payments are made late or you're over your line of credit you'll see a bad mark on your credit report. Negative activity will remain on your credit report for long periods of time and when other lenders check on your credit worthiness they are either less inclined to lend you money or will do so at a much higher cost.
  • Before you make that next purchase consider if it's a need or a want. Your credit score is impacted by how much credit you're currently utilizing. For example, if you have a $1000 credit limit it's more favorable to your credit score if you only utilize between 10% and 30% of that limit. Meaning, maintaining a balance of $300.00 or less will favorably impact your credit score.
  • You've heard this one over and over but it's still worthy of a reminder. Making on-time minimum credit card payments consistently has a significant impact on your credit score. Budget appropriately and pay your creditors before the due date each month.
  • Don't exceed your credit limit. Creditors are quick to report credit limit issues to the credit agencies and this will instantly stand out. Utilizing only a portion of your available credit is most favorable but not exceeding your credit limit is a no-no. In fact, paying off your credit card each month will help you best budget your money and demonstrate responsible spending to creditors.
  • If you're credit cards have been closed, due to irresponsible spending, apply for a secured credit card. These cards typically allow for you to gain access to a Visa or MasterCard with your collateral deposit. Often after 6 to 12 months of responsible spending companies will upgrade the card to a more traditional line of credit. Gaining access to credit again, and using it responsibly, will positively impact your credit score.
  • Once you've improved your credit score you should upgrade to a better credit card with fewer fees and a lower interest rate. This will continue to benefit you financially which will be reflected within your credit score.

Responsible credit card spending is the key to improving your credit score. Make payments on time, mind your spending limits and even apply for a secured card if needed to get your credit score headed in an upward direction.

The Best Reviews of Credit Cards for People with Bad Credit