You may have fewer options if you want a new credit card and have a bad credit score, but there are still good cards available. Some even come with rewards and low fees. You can also use your new bad credit cards to improve your credit scores so that you can more easily qualify for more favorable cards and loans later on.
Table of Contents
What To Do Before Applying For A Credit Card?
You can start checking your FICO® Score☉ for free. It’s a good first step because submitting a credit card application can lead to a difficult investigation, which can lower your credit score slightly. With this in mind, you may not want to apply unless you are pretty sure you will be approved. But there are ways to find credit cards that fit well without hurting your credit score.
If you have a low score, such as a FICO® score of less than 580, checking out pre-approved credit card offers is an option. You can get them by mail or from your current financial institutions. If you’ve received these offers, it’s because you are pre-qualified and meet the card issuer’s requirements to make a firm credit offer.
Credit card issuers may also allow you to apply for a credit card prequalification. Don’t be discouraged if the website says pre-approval instead of pre-qualification; some card issuers use the two terms interchangeably.
When you submit a pre-qualification, the card issuer will review your basic information and may invite you to apply for certain cards. You can get a variety of card offers, but if you’re not pre-qualified, you may want to check out the options from other card issuers.
Both credit card pre-approvals and pre-qualifications result in a smooth credit search, which does not affect your credit scores. Nor is it a guarantee of approval; however, if your credit has not deteriorated since you were pre-approved or pre-qualified, you may be able to get the card.
Aside from pre-approvals and pre-qualifications (not always an option), you can focus on credit cards that are generally available to those with low credit scores.
What kind of credit card can you get with bad credit?
High-risk secured credit cards, tailored for those with little credit histories or who are working to restore credit after past setbacks, maybe your best bet. They work similarly and there are many cards to choose from within each category.
Secure Cards
Secured credit cards are often for people who are new to credit or who have bad credit. When you open a secured card, you must send the card issuer a refundable deposit; that’s where the name comes from.
The deposit limits the card issuer’s risk and generally determines the credit limit of your card. Many cards have a minimum deposit of $200, but you can spend more if you want a higher limit.
Aside from the required deposit, secured cards work just like any other credit card. Some of the more secure cards even offer rewards, and some have no annual fee.
The OpenSky® Secured Visa® credit card has a $35 annual fee and no rewards, but it may be a good option for some people with bad credit. For example, many secured cards require you to have a bank account. But not this card: You can open the card by sending the refundable deposit via bank transfer, check, or money order. The application also does not require a credit check, which can be useful if you have particularly bad credit or want to avoid a difficult investigation.
Subprime cards
Subprime cards are unsecured cards for people with bad credit (“subprime”). These can be a good option if you don’t want to tie your money to a security deposit. However, please read the card’s terms and fees carefully before signing up.
Some Subprime cards have an application fee, along with annual or monthly fees. They can also be difficult to manage if the card issuer does not offer an intuitive online interface or good customer service. You’ll also likely get a low credit limit, though it can increase over time if you use your card responsibly.
While you usually want to be careful with unsecured subprime cards, AvantCard can be a good option. It has an annual fee of $59, but there are no foreign transaction fees. However, the card is not available if you live in Colorado, Hawaii, Iowa, Nevada, Vermont, West Virginia, and Wisconsin. It also has a high annual rate, which makes carrying a balance expensive.
Cards with alternative subscription
Another option might be to look for card issuers that use alternative underwriting tools and don’t rely as much on your credit scores. These are usually newer companies that only offer a few credit cards.
For example, the “No Annual Fee” Petal® 1 Visa® Credit Card, which offers rewards and has no annual fee, does not require a credit score when you sign up. If you qualify, Petal will create your Cash Score for you. You can submit a prequalification request without affecting your credit scores.
How To Improve Your Credit Before Applying For A Credit Card?
Improving your credit score can increase your chances of getting approved for a new credit card. But your next steps may depend on why you have bad credit.
While there are many things you can do to get a better credit score, there are no quick or easy ways to change your score from bad to excellent. You need to do several things to improve your credit score, and the specific steps you take will depend on what’s affecting your score right now, according to www.thebalance.com.
Find out what’s hurting your score
To improve your credit score, you need to understand what makes your credit score bad.
Before doing anything else, ask for a copy of your credit report and credit score. You can order your credit report from all three major credit bureaus authorized by the Central Bank of Nigeria, or you can start with just one. If you are looking for a way to reduce costs (credit reports and scores can cost you a certain amount).
Look at your credit score. It is a three-digit number between 300 and 850 if you have applied for a FICO or other generic score or between 550 and 990 if you have applied for the Vantage Score. In either case, you must have an explanation as to why your credit score is low. For example, high credit usage, too few accounts, or recent delinquent payments can affect your credit score.
Then check your credit report for specific accounts with high arrears. If the negative items are incorrect, remove them by disputing them with the credit bureau or information provider.
Over your negative payment history
If your credit report has multiple delinquents, you must pay off delinquent balances and add positive payments to your credit report. Open new accounts to build a positive payment history when all your other accounts are closed. Because of your low score, it can be difficult to get approved for a traditional credit card.
Fortunately, in advanced countries, there are other options for getting a credit card with poor credit, such as a secured credit card, a store card, or a credit-building loan.
Once you have a new account, you must make all of your monthly payments on time, even if it means setting up an automatic payment. The key is to overshadow your history of negative payments with positive payments.
Low high credit usage
High credit usage means that your credit card and loan balances are high relative to your credit limit or the original loan amount. The solution to high credit utilization is pretty simple: pay off those balances. Of course, this can take a long time if you don’t have enough money to bring your credit card balance within 10-30 percent of the credit limit.
You may be able to shuffle your balances in a way that makes using them smoother. For example, if one credit card is 50 percent used and the other has a zero naira balance, you can transfer some of the balance to meet your usage. To achieve this, you must ensure that the new credit card balance is less than 30 percent of the limit. Don’t forget to factor the cost of the balance transfer into your decision. It may be cheaper to leave your balance where it is and just pay it off more aggressively.
Speaking of credit usage, if you’re starting over with new credit card accounts, make sure those balances stay within 10 to 30 percent of the credit limit. That is the best level to build a good credit score. All of the above can hurt your credit score.
Get a combination of credit
Having a mix of checking accounts is important because it shows lenders that you have experience with different types of accounts. Credit cards are different from installment loans, and if you can manage them well, you’re at a better credit risk than borrowers who never had one or the other.
If you need an installment loan for your credit report, find a local bank. Once your loan is approved, the principal of the loan is deposited into an interest-bearing savings account.
You make regular monthly payments, not from the money in the savings account, but your money. Your positive payments are reported monthly to the credit bureaus. Once the loan is paid off, the savings and interest are yours. The credit-building loan is also an option to add accounts to a thin credit profile that has few or no accounts.
Make sure to use old accounts
The age of your credit history is 15 percent of your credit history. The easiest way to improve your credit score in this area is to let your checking accounts become obsolete. Make sure to regularly use your oldest checking account to keep it active. Leaving the account inactive will not put as much weight on your credit history.
The amount of time since you first established your credit history is only part of how credit score calculations look at your credit age. The average age of all your accounts is another factor. Opening a lot of new accounts can lower the average age of your credit, so don’t open them unnecessarily. But open accounts if you need to to help your credit score in other areas.
Make recent searches obsolete
Every time you apply for credit, questions are listed on your credit report. Unlike other negative information, questions only stay on your credit report for two years but affect your credit score for only 12 months.
Questions are only 10 percent of your credit score, but in theory, they have the potential to lower it from 600 to 540. After opening some new accounts to rebuild your credit score, let these questions expire before considering a purchase of a new account.
Give It Time
You may be doing all the right things: You’ve opened a few new accounts, you’re aware of arrears, you’ve paid off your balance and paid your bills on time, and you haven’t seen an improvement in your credit score yet. The best thing you can do is wait. It takes time to recover your credit score from seriously negative information, to clear questions from your credit report, and for a positive payment history to outweigh a negative past. Be patient and check your credit score in a few months to see what risk factors are still affecting your score.
Check Your Credit And Match It With Credit Cards
Opening a credit card allows you to add new information to your credit reports, which can help you build credit, as long as you manage your new card responsibly. If you’re focused on improving your credit scores, you can use the card for a small purchase each month and then pay the bill in full.
Checking your credit scores can help you understand where you stand now and when you stand a chance of getting approved for better credit cards.