You want to apply for a credit card but worry you won’t get approved because you have bad credit. The reality is that past financial missteps won’t necessarily disqualify you from getting a credit card with reasonable terms. And by shopping around to find the best fit, you could start rebuilding your credit health and open the door to better financial opportunities.
What Do Credit Card Companies Consider Bad Credit?
FICO is the most prevalent credit scoring model. It’s used by 90 percent of creditors and lenders to make credit decisions.
A bad credit score is anything below 579. Here’s a breakdown of FICO score ratings:
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Exceptional: 800 to 850
What Is The Minimum Credit Score Needed for a Credit Card on Average?
It depends on the credit card issuer. Some will accept consumers with poor credit scores. Others don’t conduct a credit check or require a credit history to get approved.
However, credit cards with attractive terms and incentives are generally reserved for individuals with very good or exceptional credit. So, it’s worthwhile to start building your credit score sooner than later.
How Do Credit Cards Improve Your Credit Score?
Credit cards can help boost your credit score in several ways. For starters, payment history accounts for 35 percent of your credit score. So, paying on or before the due date each month will help build positive payment history, and your score will increase over time.
The amount you owe creditors is 30 percent of your credit score. This metric is measured by credit utilization or the percentage of your credit limit used on revolving accounts (i.e., credit cards). You want to keep your utilization at 30 percent or lower – 10 percent or lower is even better – to improve your credit score. So, if your credit limit is $1,000, try to keep the balance at or below $300.
Other Things to Consider When Choosing a Credit Card
When researching credit cards for bad credit, keep these factors in mind.
Reports Payments Made
Does the credit card issuer report account activity to the three credit bureaus – Experian, TransUnion and Equifax? Even if they don’t report to all three, it’s vital that they report to at least one credit reporting agency, as positive payment history, which accounts for 35 percent of your credit score, can significantly boost your credit health.
Low Costs and Fees
What APR does the card offer? Are there monthly maintenance fees or annual fees? Will a penalty APR be assessed if you make a late payment? Ideally, you want to stick with credit cards that assess minimal fees so that you can keep costs down.
Ability to Upgrade Later On
If you start with a secured credit card, is it possible to upgrade to an unsecured credit card in the future? Ask the credit card company if this is an option for cardholders who demonstrate responsible use of their secured credit cards over time.
Credit Cards That You Can Get with Bad Credit
Several credit card options may be available even if your credit score is lower.
Virtual Credit Cards with No Credit Check
Grain is a mobile app and credit card alternative that provides lines of credit with no credit check required for lines up to $1,000. It’s available on the AppStore, or you can join the mailing list to be notified when it’s released on Google Play if you have an Android device.
Depending on your cash flow and if you’re asked to do a credit check, you can get a revolving line of credit of up to $5,000. Perfect credit isn’t required, and you could also be eligible for a credit line increase following six months of responsible use. This includes making on-time payments and keeping the utilization low on your Grain account. It’s equally important that your primary checking account that’s used with Grain reflects consistent income deposits and is free of overdrafts and NSF fees to have the best chance of qualifying for a higher credit line when the time comes.
Even better, it syncs with your debit card so you can easily access funds when you need them. Simply initiate a transfer from your revolving line of credit to your checking account via the mobile app and instantly use your debit card.
Account activity is also reported to the three major credit bureaus – Experian, TransUnion and Equifax – to help improve your payment history and overall credit health.
Download the Grain app today to learn more about the host of enticing features it offers. When you set up an account and connect your primary checking account, Grain will review your account activity to determine if you’re pre-approved for a personal line of credit up to $1,000.
It only takes a few minutes of your time and won’t impact your credit score.
Secured credit cards operate like traditional credit cards but require a security deposit to get approved. The amount you deposit is typically equal to your credit limit and is held by the lender until you’re upgraded to an unsecured credit card (if applicable) or close your secured card account.
There’s an assortment of unsecured credit cards that cater to consumers with bad credit. However, many come with steep APRs and fees, and you may not have the option to upgrade to an unsecured card.
Store credit cards also fall into this category. Although the credit limits are usually on the lower end, you may be able to qualify with a low credit score. Plus, most aren’t riddled with pesky maintenance fees.
Cards with Alternative Underwriting
Alternative-approval credit cards are designed for credit newbies that are unable to get approved elsewhere due to limited credit history. You can also find credit card issuers that offer these cards to consumers with bad credit and consider alternative data (i.e., bank account activity) when assessing your eligibility for a credit card.