By Adam Jusko, ProudMoney.com, firstname.lastname@example.org
There is no set definition of bad credit, but if your credit score is lower than 600, most credit card issuers will consider that bad credit (though they’ll call it by the nicer name of “subprime”). If you’re trying to rebuild your credit score with a new credit card or cards, here are our suggestions on the path you should consider:
Step 1: Will Capital One or Discover approve you?
Capital One and Discover are the two major credit card issuers that are most open to accepting people with bad credit scores. You might not qualify for their best cards, and you might get a very low credit limit if you are approved, but your chances are best with these two banks, so our advice is to try them first.
Do a Pre-Approval
If you’re unsure about being approved, do a pre-approval or pre-qualification with Capital One or Discover. You fill out a form and they do a “soft inquiry” on your credit report to see what cards you’re likely to qualify for. While a pre-approval is not a guarantee that you’ll be approved, it should give you a solid idea of your chances. Use the links below to get started:
Cards You Might Get Approved For:
- Capital One Quicksilver or Capital One QuicksilverOne – If your credit isn’t too bad, Capital One might approve you for one of these cards that offers 1.5% cash back on all of your purchases. However, if you are approved for the QuicksilverOne version of the card, note that it will have a $39 annual fee.
- Capital One Platinum – This is Capital One’s most basic unsecured card for those with lower credit scores. No rewards and a fairly high interest rate, but no annual fee. It may be the place to start if you can’t get unsecured credit anywhere else.
- Discover it – If your credit isn’t too bad, you might qualify for this no-annual-fee rewards card that gives 5% cash back in certain rotating categories and 1% cash back everywhere else.
- Discover it Chrome – If your credit score is low, Discover still might accept for this no-annual-fee credit card that gives 2% cash back on dining and gas purchases, and 1% back everywhere else.
- Discover Secured Card or Capital One Secured Card – If you get offered one of these cards, it means your credit score was too bad to offer you an unsecured credit card. Choosing to get a secured credit card is often a very smart choice for people with bad credit, but unlike “regular” credit cards, a secured credit card requires you to put down a refundable security deposit to get the card. We will come back to the idea of getting a secured card further down in this article, but if a secured card is the only thing that Capital One or Discover is offering you, there are still other options to consider before going the secured card route.
Step 2: If turned down by Capital One or Discover
If Capital One or Discover say no, you can be pretty certain that the other “big banks” will say no, too. But there are a few other options that might work:
- Apple Card – The Apple credit card isn’t intended for bad credit customers, but Apple (and their partner bank Goldman Sachs) do have a “Path to Apple Card” approval program that is designed to help those whose bad credit scores might initially disqualify them for approval. If you can show a pattern of on-time payments on current cards or loans for a certain period of time, Apple may invite you to re-apply for the card, which suggests you’d likely be approved at that later time. However, not every person who is declined for the Apple Card will be invited to enroll in the Path To Apple Card program.
- Smaller credit card companies like Merrick Bank, Ollo, Mission Lane or others might send you invitations to apply for their cards. Some of these cards offer reasonable terms, but others have high annual fees or monthly fees and give you very small credit lines (as little as $200) with high interest rates. You MUST read the terms and conditions of any card offers you get very carefully. Any card that has an annual fee of $75 or more and tells you your credit limit could start at $300 or less is a card you should probably avoid.
- Credit unions may be more forgiving of bad credit than the major credit card lenders. There are huge credit unions like Navy Federal Credit Union but there are even more small, local credit unions where you could qualify for membership and perhaps get a credit card that will help you rebuild your credit score. Credit union cards are often rather plain in terms of rewards versus the big bank cards, but if you have bad credit, that won’t matter to you anyway, because you wouldn’t qualify for the more rewarding cards on the market. So consider giving a credit union a try.
- Store Credit Cards can help you build your credit, but if you have bad credit you will usually only get approved for cards that are good at a single retail chain. This is obviously limiting, but if you could be approved for something like the Walmart credit card or a card from JCPenney, Home Depot, Lowe’s, eBay, etc., you could still buy a variety of items on credit while building a better credit history. It’s not the ideal solution, but climbing up out of bad credit isn’t simple!
Step 3: Build Credit with a Secured Credit Card
As mentioned above, a secured credit card can be a very good way to re-build your credit. Yes, you have to pay a security deposit to get a credit card. However, secured cards can be a good way to get your foot in the door with a major bank, and many secured credit cards “graduate” to unsecured cards after a certain period if you’ve paid your bills on time — sometimes as little as six months. That means you could end up with a “regular” unsecured card and get your initial security deposit returned to you fairly quickly. In addition, secured cards often have lower fees and interest rates than some of the “bottom feeder” unsecured cards that charge you a lot and give you very little.
Our choices for the best secured credit cards:
- Discover it Secured Card
- Bank of America Cash Rewards Secured Card
- Navy Federal Credit Union nRewards Secured Card (must qualify as credit union member first)
Bad Credit Credit Cards Are A Means To An End
Any of the suggestions above could give you your first step toward a credit card and the chance to re-build your credit history after problems in the past. Obviously, though, these are just stepping stones to better credit cards — and a better credit score. If you make your payments on time and keep your card balances low, you’ll find that more and more banks will be offering you better and better cards.