How to Get a Credit Card When You Have Bad Credit

October 4, 2019 | Mission Fed

There are many benefits to having a credit card: they act as small loans, provide purchase protection, fraud protection, and typically come with a rewards program. Additionally, successfully applying for a credit card allows people to access a line of credit that can build throughout their lifetime. But, what if you have bad credit or have no previous credit lines opened? Don’t worry, you can still apply for certain types of credit cards even with a poor credit score.

Keep reading to find out how to apply for a credit card with bad credit history, along with other helpful tips.

Credit Scores and How They Affect Credit Cards

First of all, it is important to understand what exactly qualifies as bad credit. The FICO scale ranges from 300 to 850. Generally speaking credit scores between 300 and 650 are considered poor credit. Your goal should be a score of 700 or higher.

Why does my credit score matter when applying for a credit card?

From the perspective of the credit card companies and lenders: the lower your credit score is, the more likely you are to default on your debt payments. Credit is about trust. If your credit score is good, these credit card providers will feel good about trusting you.

Though, just because you have bad credit, it does not mean you cannot apply for a credit card.

Before You Apply For a Credit Card

Are you wondering, “Are there any credit card options that I can apply for with bad credit?” Well, before you start applying, there are a few steps you may want to complete, to make sure that you are in the best position when applying for a credit card:

  • Talk to your local credit union – First things first: Speak with a local credit union manager to understand credit history and your financial positioning. They will help you decide the next steps and what pitfalls to avoid.
  • Take care of late payments – Most credit card providers will not approve applicants with recent delinquencies. Also, it does not make sense to add to the debt that you already have. So, make sure you pay off your other credit card debt on top of your usual monthly payment before going to a card issuer and applying for another one.
  • Compare credit card fees – As a low credit holder, it is smart to keep all costs down. One way to do this is by finding a credit card company that offers little (or no) annual fees, monthly and balance transfer fees, late payment fees, or one-time fees.
  • Be aware of your payment history and credit score – Obtaining a credit card with a bad credit score can be difficult. However, it is essential to open an account as soon as you can in order to start repairing your credit reputation. One way to improve your credit score is by opening a new account with a trusted lender.
  • Don’t over-apply for cards – When you apply for a credit card, the bank or credit union will do a credit check on you. Every time your credit score is verified, your credit score goes down. Be sure to research the opportunities first and then, be selective about which card you apply for.
  • Consider approval odds – Look into cards with high approval odds. The closest thing you will get to a guaranteed approval is a Secured Credit Card. While you may be paying a higher upfront fee, this credit card offers much, and usually approves a low credit rating.
  • Understand the different types of credit cards – Knowing which credit card is right for you can help in the long run. Before you start applying, learn about all your options.

Secured Credit Cards

These work almost exactly like other credit cards. The main difference is that it requires you to pay a refundable security deposit, before you open an account. The security deposit fee is usually equal to the credit limit amount. Once your account is up and running, you can use the card exactly like an unsecured credit card!

Anybody can apply, as long as they can verify their identity and prove they do not have any pending bankruptcy proceedings.

Benefits of Secured Credit Cards:

  • Basic travel insurance
  • Purchase protection

Downsides of Secured Credit Cards:

  • If you cannot keep up with monthly payments, the lender will hold your security deposit to cover the debt.

Subprime Credit Cards

Another kind of credit card is a subprime credit card, which is an unsecured card that is designed specifically for bad credit holders. Unlike secured credit cards, subprime credit cards do not require a security deposit to open an account. Instead, credit lenders will impose substantial credit card fees to cover the high risk of issuing unsecured credit cards to those with bad credit.

Benefits of Subprime Credit Cards:

  • Completing on-time payments can assist in qualifying for an unsecured card with lower fees. Basic travel and purchase protection.

Downsides of Subprime Credit Cards:

  • High-interest rates
  • Sometimes these come with hidden (and costly) fees
  • Fewer options on the market

Which Card Fits Your Needs?

When you have a poor credit score, finding the right type of credit card for you, means finding a temporary solution. The goal should be to use this card to build credit and apply for better options.

With this in mind, consider both the security deposit and spending amount of each card to fit your lifestyle.

Security Deposits

Do you have the available cash for a security deposit? If the answer is no, strongly consider saving your funds before applying or getting a subprime card. If you would like to use the card for purchases, think about a card with lower annual percentage rates (APR) and lower fees.

Spending Amount

How much do you plan on spending with the card? Subprime cards do not require security deposits, however, they do come with low credit limits and higher fees. This results in less spending power overall. Meanwhile, secured cards, although they require deposits, offer more perks and opportunities.

Building Credit

Both cards can help you build your credit score. The key is to spend responsibly and make all your payments on time. Be on the lookout for the next due date to avoid a possible late payment by regularly checking your payment history. Also, make sure the card issuer will report your credit account and payment information to credit bureaus; otherwise, no one will know you're achieving excellent credit!

Major credit bureaus include: Experian, TransUnion, and Equifax.

How to Apply

Now that you are armed with the facts, here is some helpful information when applying:

  • Shop Around – With so many credit cards available, it is easy to have trouble deciding on which credit card option will fit your needs. Take your time and shop around. You will want to find the card with the lowest deposit requirement, lowest fees, and highest approval odds.
  • Application – Next, you will want to fill out a credit card application. Most places offer online applications that are easy to fill out.
  • Security Deposit – If you plan on getting a secured credit card, you will need a security deposit. This will be needed upon application or immediately following approval.
  • Get Approved – The final step is getting approved. Once you have done this, congratulations! You are officially a credit card owner.

Tips for the Credit Card Holder

So, you are officially a credit card holder. Now what? Make sure you use your card responsibly, and do not take the opportunity you were given for granted.

How to be a good credit card holder:

  • Make on-time monthly payments
  • Consider paying your balance in full to avoid interest
  • Do not hold onto your credit card for long. You will want to get a new one with better rates eventually
  • Try to improve your credit score whenever possible

Keep Building Your Credit

Once you are approved for a credit card, you now have an excellent opportunity to build your credit score. A good credit score will not only help you get a better card with fewer fees and higher reward but, it will also make your life a lot easier in many ways.

Things you need good credit for:

  • Signing a car or home lease
  • Obtaining a mortgage
  • Applying for specific jobs that deal with money

Good Credit Cards and Bad Credit

Hopefully this guide helped you understand the credit card world a little better. Having bad credit can certainly be limiting, but it does not mean you don't have options. If you are still unsure, always remember your local Mission Federal Credit Union branch is available to help.

The content provided is intended for informational purposes. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Sources:

Experian. How to Apply for a Credit Card with Bad Credit. https://www.experian.com/blogs/ask-experian/how-to-apply-for-a-credit-card-with-bad-credit/

WalletHub. Credit Cards for Bad Credit. https://wallethub.com/credit-cards/bad-credit/

Mission Fed

Mission Fed

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