Credit Cards for Bad Credit: What to Look for, What to Avoid
Having poor credit should not be a life sentence. Now, more than ever, consumers with troubled credit histories have access to a wealth of credit card options. The key, however, is to make sure you find a credit card that will support your credit-building goals, not amplify any existing problems. Finding credit cards for bad credit will require patience, persistence, and a healthy amount of research. You may need to spend more time digging through the fine print to learn what a prospective card is really offering. To save you some time, we rounded up our top tips for selecting a credit card for bad credit.
What to Look For
The best credit card for your situation might not boast top-notch benefits, such as cash back or rewards on your purchases and a low interest rate. Even the most attractive option will come with its own set of drawbacks. However, after you cultivate a decent history of paying your credit card bill every month, you stand a much better chance of qualifying for a card with better perks — and terms — the next time around. Here is what you should be looking for in a credit card for bad credit.
- Secured cards. Secured cards will require you to pay a cash deposit up front, which will serve as your “credit limit.” This is typically the smartest financial option for someone shopping for a credit card for bad credit. If you do not pay the bill, the card issuer could take the deposit. But when you build up a history of on-time payments, you will eventually earn the deposit back and perhaps be able to upgrade to an unsecured card.
- Store credit cards. The often-overlooked store credit card can actually be quite useful as a credit-building tool. These typically boast lower barriers to qualification, so a person with bad credit would have an easier time obtaining an approval. They also offer lower credit lines, so it is easier to avoid racking up excessive debt. The catch: Only charge what you can afford and pay the bill in full every month so that you avoid the higher interest rates and late fees that come with these cards.
- A card that reports to the three major bureaus. Find out if the card you select will report to the three major credit bureaus. After all, you want your credit report and score to reflect all of your hard work and efforts to repair your credit. Typically, the major card issuers will automatically do this, but always ask before you make any commitments.
What to Avoid
Consumers with bad credit are especially at risk for predatory credit card offers. Credit cards for bad credit unfortunately often come with a steep price tag — in the form of high annual fees or interest rates. These are the main areas you should avoid in your search for a credit card for bad credit:
- Excessive fees. You may not be able to avoid an annual fee when you are shopping around for a credit card for bad credit. Still, it is best to keep the annual fee as low as possible. Aim for a fee under $50. Be on the lookout for any additional fees, such as one-time account opening or processing fees.
- High-interest unsecured cards. Be wary of any unsecured card offer that promises a quick and painless credit approval, even for those with subpar credit. To protect themselves from risky consumer prospects, these credit card companies charge excessive interest and fees — which will only aggravate your debt and credit problems.
- Cards with spending requirements. Some credit cards offer welcome bonuses and other rewards if you spend a certain amount during the first few months of card membership. Steer clear of these and any other offers that encourage excessive spending. It may not sound like much fun, but you’ll want to focus on keeping your spending in line with your budget and paying your balance each month.
- Too many credit applications at once. Each application you submit will register as a hard inquiry on your credit report, which can drag down your score. To avoid that, only apply for cards that you are pre-qualified for — provided they don’t come with any of the risks mentioned above. The pre-screened offers are considered soft inquiries, which will not affect your credit rating.
Take the Next Step
Using your new credit card responsibly plants the seeds for a stronger credit score. If you need assistance tidying your credit report during this process, reach out to the team of specialists at Ovation Credit. We’re happy to dive in and help you restore your credit to good standing. Contact us today.