How to get a credit card with bad credit

Having a bad credit history means that you are a high-risk borrower due to past financial behavior. You may be past due on a credit card or loan, or have depleted your lines of credit.

In more extreme cases, you may not pay your debts at all, leading to insolvency, collection accounts, or bankruptcy. All such activity is reported on your consumer credit reports developed by TransUnion, Equifax and Experian.

If you have a bad credit history, you may think that you are not eligible for any new credit card. But the accounts are available to people with any credit profile, from good to bad.

The key is to pursue a credit card that matches your creditworthiness and suits your needs. By receiving this card, you can rebuild your credit so that you are eligible for an even wider range of loans in the future.

Here’s how to get a credit card when you have bad credit and some easy ways to improve your score before you apply.

What type of credit card can you get with bad credit?

Focus on credit cards designed for those with a fair or lower credit score. You have several options to explore:

Protected cards

These cards function just like unsecured credit cards, except that you make a cash deposit to guarantee the line of credit. If you are late in payments, the issuer may claim the money you owe from the funds it holds on deposit. Luckily, there are many secure cards to choose from.

Many of them, such as Citi® Secured Mastercard®, do not offer bonus programs. However, some are, including the Capital One Quicksilver Secured Cash Rewards credit card, which offers unlimited cash back of 1.5% on every purchase.

Depending on the issuer, your secured card may be automatically converted to an unsecured account if you manage it well for a certain number of months. At this point, you will receive your deposit back. In other cases, you will receive your deposit back when you close the card with a zero balance.

Substandard cards

You can also open an unsecured credit card for those with a low credit score. Credit limits for these sub-prime cards are usually low, but can increase over time with responsible use. While some have bonus programs, many do not. For example, the Avant credit card does not offer rewards, but the Capital One Walmart Rewards® Mastercard® allows you to earn between 1% and 5% cashback depending on where you use it.

Retail cards

Commonly known as store cards or retail cards, credit cards that you can only use at certain retail stores may have more forgiving eligibility standards than general purpose cards that you can use anywhere. Department stores such as Kohl’s, JCPenney and Dillards will consider credit card applicants with a fair credit history. Retail cards often charge high interest rates, so be careful to pay off your balance in full each month.

credit union cards

One of the benefits of being a member of a credit union is that the institution can provide you with an unsecured credit card even if you have credit problems. There are many credit union credit cards that anyone can get. To apply, you need to become a member of a credit union, which can be as easy as opening a savings or checking account. These nonprofit financial institutions have a mission to help their members succeed, which may include helping them rebuild their credit.

Other options you have

Become an authorized user

Another way to get a credit card is to use someone else’s account. You may have a relative or close friend with a good credit history who is willing to allow you to charge their account, making you an authorized user.

As an authorized user, you will receive a card imprinted with your name. The issuer will not hold you accountable for payments, but payment history will appear on your credit report. As long as the primary cardholder makes all payments on time and you keep your balance low, this will help you improve your credit score.

Improve your credit before applying

You may want a new credit card right now despite your bad credit history. However, you will have more options if you upgrade your credit before the application process begins. Access your credit reports at AnnualCreditReport.com to see what’s holding you back and then take action to move forward.

• Change behavior. If you have credit cards with large balances, your credit utilization ratio is down and it hurts your credit. Pay off debt so that your balances are less than 30 percent of your individual card limit—and of your total available credit. If you see delays, start paying your bills again on time. Late payments will remain on your records for seven years, but recent activity matters more than old.
• Add Pros. Consider a loan builder loan, which means you borrow money, but the funds stay with the lender. When you repay your loan, you will receive money and a better credit report thanks to your stable payments. Or add non-credit accounts to the report. With the free Experian Boost program, you can include your utility bills and mobile phone on your report. By making these payments on time, you can add points to your points and may be able to upgrade points to “good” status.
• Remove cons. Debt collection accounts will show up on your credit reports for seven years, but if you pay off your debt, the most recent versions of FICO Score and VantageScore will not include debt in their calculations. If misinformation appears on your credit report that lowers your numbers, file a claim with the credit bureau. Once this information is gone, your score will go up.

bottom line

Bad credit shouldn’t keep you from getting a good credit card. Once you have determined the best card for you, apply and then put it to good use.

Regardless of card or issuer, the rules are the same: charge at least once a month to keep your credit reports flowing, pay on time, and keep your balance at zero or very low. Over time, you will prove that you are indeed a big credit risk, after all.

Erica Sandberg is a renowned personal finance professional and author of Waiting for Money: The Essential Financial Plan for New and Growing Families. Her articles and insights have been featured in The Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSN Money and Dow Jones MarketWatch. An active TV and radio commentator, Sandberg is a credit and money management expert at KRON-TV in San Francisco, and a frequent guest on Forbes Video Network, Fox Business News, Bloomberg TV and all Bay Area networks. Prior to starting her own reporting and advisory business, she worked at the San Francisco Consumer Credit Counseling Service, where she advised individuals, conducted educational seminars, and managed media relations. Sandberg is a member of the Society of American Business Editors and Writers and a member of the Project Money Advisory Committee.