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If you have a low credit score, you may be surprised to learn that getting a new credit card can actually help. If you can get approved for a new card despite having bad credit, you have the opportunity to build better credit habits and creditworthiness with responsible use. Not only that, adding a new card can improve your credit utilization ratio and credit score if you’re already in debt.
Unfortunately, credit card options for people with bad credit often have few benefits. For example, you won’t normally get a welcome bonus with these cards, and they often charge fees, such as annual fees and foreign transaction fees. Credit cards for bad credit can also come with high interest rates, which can make carrying a balance a costly endeavor.
But with all that said, it’s important to understand that some credit cards for bad credit are significantly better than others. So, let’s take a look at the types of credit cards you might qualify for for poor credit, as well as how you can use them to your advantage.
If you have bad credit, you probably already know about it. After all, a poor credit score usually means you’ve been denied credit cards or other loans in the past because the lender feels you’re taking too much financial risk. You probably also know the reason you had bad credit in the first place, whether it was because you let a loan or credit card go into default, your account was in debt collection, or had a bankruptcy filing.
But even if that were the case, it would never hurt to check your credit score so you know exactly where you stand. Fortunately, there are quite a few ways to check your credit score for free.
You can get started by signing up for a credit monitoring service that offers free credit scores or a program that offers free credit monitoring tools. Eg, Experian Boost gives consumers a free look at their FICO credit score, and it can even help you improve your score quickly.
As you work on your credit score, you’ll probably want to pay the most attention to your FICO credit score, as this is the most commonly used scoring model. FICO credit scores range from 300 to 850 and are divided into the following levels:
- Excellent: 800 or more
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 579 or less
While a truly “poor” credit is a FICO score of 580 or less, a “fair” credit of 580 to 669 is still below average when compared to other US consumers. If your credit score falls into either of these categories, you should take steps to improve it as quickly as possible.
If you have poor credit, there are two different types of credit cards you may be eligible for – secured credit cards and unsecured credit cards.
Secured credit cards are usually easiest to get if you have bad credit. However, secured credit cards require a cash deposit to get started. This means that you may be required to deposit $200, $500 or more as collateral, and you will typically get a credit line as low as or close to your deposit.
The biggest benefit of secured credit cards is that they are often reported to the major credit bureaus. This means that all due payments will be added to your credit report, which can help increase your credit over time. And although you do have to make a cash deposit to open a secured card, if you later close your account or upgrade in good standing and with a balance of $0, your deposit will be refunded.
In addition to a secured credit card, you may also qualify for an unsecured credit card with bad credit. These cards tend to come with fees, low credit lines, and few benefits, but they can help you build credit all the same.
Store credit cards are also an unsecured credit card that can be easier for people with bad credit to get approved, as they can usually only be used at the store or card issuer chain.
Aside from being easier to get approved, the biggest advantage of a store credit card is that if you find yourself frequently shopping at a particular retailer, you can save some money, whether it is a first purchase or after a purchase a future shopping trip. Usually, using a store credit card saves you 5% on purchases, and a store credit card can also offer other benefits you might not have thought of.
Before getting a new credit card, you should make sure you have a clear understanding of what you hope to achieve. While a credit card gives you the opportunity to improve your credit, you can make your credit worse if you’re not willing to take responsibility. So, before you apply, ask yourself the following questions:
- Am I going to bring a scale? If you want a credit card so you have the option of carrying a balance, you should know that credit cards for bad credit come with high interest rates. Not only that, secured credit cards require you to put up cash as collateral, so they’re not a good option if you need a loan.
- Am I interested in rewards? Some credit cards for people with bad credit offer the opportunity to earn rewards as you spend. While rewards can be lucrative, keep in mind that they often entice people to spend more than planned.
- Do I want to pay the annual fee? Not all credit cards for people with bad credit charge an annual fee, but some of them do. If you decide to pay an annual fee, you should make sure any benefits you get are worth it.
- Am I ready to take my credit seriously? A new credit card gives you the opportunity to improve your credit, but it won’t happen automatically. For the most part, getting a new credit card will only help your situation if you keep your balance low and always pay your bills on time.
The best credit cards for poor credit may not seem very appealing, but the point is to use them to boost your credit score so you can qualify for better offers later on. However, there are some “mistakes” to watch out for and watch out for, including:
- Fees: While you should try to avoid annual fees if possible, you should also be aware that some credit cards, especially those for people with bad credit, try to charge an account opening or plan fee. submit. Avoid these offers as much as possible.
- High APR: Beware of high interest rates that can make it extremely expensive to take on debt. In fact, if you’re going to use a credit card to improve your credit, you should try to avoid carrying a balance on your new card altogether.
- Credit error: Finally, watch out for mistakes that hurt your credit in the first place. The worst thing you can do is pay your credit card bill late, as it will have a huge negative effect on your credit score, so avoid it at all costs.
If your goal is to get a new credit card to help rebuild your credit, you need to know and understand How to determine your credit score right from the start. Let’s take a closer look at the five factors that make up your FICO credit score:
- Payment history: 35%
- Amount of ownership: 30%
- Credit history length: 15%
- New credit: 10%
- Credit Combination: 10%
When you consider these factors, it’s easy to see what your next steps should be. Most importantly, you should strive to pay your credit card bill – and all other bills – on time every month. Additionally, you should keep your debt to a minimum because the amount you owe in relation to your credit limit makes up 30% of your FICO score, also known as the “credit utilization ratio.”
Since any credit card you get with bad credit can have a low credit limit to begin with, you need to be especially careful not to exceed your credit limit and pay off the balance. per month to keep your credit utilization ratio low.
The length of your credit history can also be increased if you keep your old credit accounts open and in good standing, and you can keep your score high in the “new credit” category by Limit opening too many new accounts.
Your credit mix is the last category to keep in mind, but you may not have too many different types of credit — like installment loans like a mortgage or car loan — when your credit score is low. your equal or less. Once you improve your credit score, you may be more worried about diversifying your credit with installment loans, revolving accounts, and other types of credit.
Finally, if you’re about to get a new credit card in an effort to improve your bad credit, you need to make sure you don’t make the same mistakes that caused you problems in the first place. So if you decide to sign up for a new credit card, be smart about how you use it. Don’t overspend, don’t pay your bills late, and avoid high-charge cards so you can get back on the road to good credit.
Is your credit score good or excellent? Or maybe you don’t have any credit at all? CNN is underrated Have you seen our other stories in this series:
Check out CNN Underscored’s list of best credit cards in 2022.