How to get a credit card when you have bad credit
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Even if you’re relatively new to credit or have bad credit, figuring out how to apply for a credit card probably doesn’t seem too difficult. You can get a credit card with bad credit by looking for secured credit cards and credit cards designed to help you rebuild your credit score.
But there’s a lot more to the process than you might think, especially if you want to get the right credit card for your situation.
Best Credit Cards For Bad Credit
Want to take a closer look at your available options? Check out our Slickdeals guide to the best credit cards for bad credit on OakPark Financial.
What is bad credit?
Credit card issuers and lenders use credit scores to predict the risk of doing business with you. In the United States, 90% of major lenders use FICO scores to guide their decision-making processes.
Basic FICO scores range from 300 to 850. A higher credit score means you’re less likely to be 90 days behind on a credit obligation in the next 24 months. While credit card issuers can use different versions of the FICO score, the chart below shows what lenders might consider bad, good, and excellent credit.
What to do before getting a credit card
Before applying for a credit card or any other form of financing, it is wise to do a little prep work. Make sure your credit is in the best possible shape (at least for now) to improve your chances of getting approved.
- Check your three credit reports. It is essential to check your credit reports with Equifax, TransUnion, and Experian several times a year. You can request a free copy of your three reports once every 12 months at AnnualCreditReport.com. Likewise, Credit Karma and Experian provide free tools to improve and monitor your credit score right from your phone’s apps.
- Challenge credit errors. Once you’ve uploaded your credit reports, review them carefully for any errors. If you find any, the Fair Credit Reporting Act gives you the right to challenge them. When you dispute an error, the credit bureau processing your investigation has 30 days to verify the account or remove it from your credit report. You can find information on how to submit a credit dispute on the CFPB website.
- Catch up on late payments. Are you past due on current credit obligations? If this is the case, it is wise to update these accounts before completing new credit applications.
- Pay off credit card balances. If you already have other established credit cards, pay off your balances as much as possible before applying for a new account. A balance of $ 0 is ideal. Not only could paying off your credit cards improve your credit scores, it could also lower your debt-to-debt ratio. Either way, you might look better on a new credit application.
Even the best credit cards for repairing bad credit won’t solve all of your credit problems. But finding the right account can be a big step in the right direction, as long as you use it responsibly.
How to improve your credit score
Your credit scores are based 100% on the information in your credit reports. So if you want to increase your credit scores, you need to focus on improving the information that influences those important numbers.
- Keep every payment on time. Payment history affects 35% of your FICO scores.
- Pay your credit card balance in full each month. Credit usage (i.e. your credit card balance / limit ratio) has a big influence on 30% of your FICO scores. It’s critical to keep your balances paid off on low limit credit cards, like the ones you may qualify for when creating credit.
- Don’t close unused credit cards. This could increase your credit usage and potentially lower your scores.
- Review your credit reports often. If fraud or errors occur in your credit reports, it can hurt your scores. It is your responsibility to notify the credit bureaus if a credit report problem arises.
- Apply for new credit strategically. When you apply for new credit, a “full investigation” is added to your credit report and can negatively impact your score. You don’t have to be afraid to apply for credit, but you should avoid too many difficult applications over a 12-month period.
How to choose a credit card when you have bad credit
Before you start looking at credit card offers, it is wise to check your credit and recognize your position. If your credit score is in the “fair” or “poor” range, you don’t want to start applying for cards that require a great credit score for approval. Instead, it’s best to start with cards that you’re more likely to qualify for now.
When you find cards that seem well suited to your credit profile, you can weigh the pros and cons of different accounts side by side. Here are some questions to guide the process.
- Secure cards: What is the size of the security deposit? How easy is it to get my deposit back in the future?
- Unsecured Cards: Is the account more expensive than a secure card with a refundable deposit? Can I upgrade to a better card later?
- Fresh: Does the card issuer charge an annual fee? Do additional charges apply?
- Awards: Does the card offer cash back or other rewards for purchases? What is the reward rate?
Credit cards have a reputation for causing debt. Yet the idea that opening credit cards is a bad financial choice is neither fair nor accurate. You decide how you will use your credit cards, just as you decide how you will use the money in your bank account.
If you’re confident that you can manage your credit cards responsibly (paying on time and in full every month), your accounts can be an asset rather than a burden. A well-managed credit card can help you build better credit scores over time and can help you reap valuable rewards.
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Although we work hard on our research, we don’t always provide a complete list of all available offers from credit card companies and banks. And as offers may change, we cannot guarantee that our information will always be up to date, so we encourage you to check all terms and conditions of any financial product before applying.