Your credit is incredibly important for your current financial health and your future financial success. You want to get your score into the excellent range and keep it there forever. However, sometimes life happens and your credit ends up dropping into the bad range, leaving you scrambling to sort out your finances. Don’t worry though, you can start rebuilding your credit score with a credit card intended for those individuals with bad credit.
Credit card issuers and banks are very skeptical about extending credit to those with poor credit. Oftentimes those with bad credit haven’t made the best decisions with money and are considered risky to lenders. However, many banks provide credit card options that mitigate their risk and can help you start building or rebuilding your credit. You will just need to do your part by making good choices with your card moving forward.
There are two types of credit granted with credit cards — secured or unsecured. Unsecured credit is the traditional form of credit used with credit cards in which you are given the ability to spend money and pay it back at a later date without any security deposit. Secured credit is a less frequently used form of credit in which a security deposit is paid up front as a means of collateral in the event the balance is not paid off. Secured credit does still require making monthly payments, though. Secured credit is the type of credit most often granted to those individuals with bad credit as it protects the lender financially.
If you have bad credit, your best chance of approval is going to be with a secured credit card. These cards often don’t have many additional perks, rewards, or benefits other than giving you the ability to build or rebuild your credit. However, there are some unsecured credit cards that are meant for those with lower credit scores and even some that offer limited rewards.
Find our top recommendations for credit cards for bad credit below and apply today. The sooner you start making on-time payments, the sooner your credit score will recover.
Our Credit Card Recommendations for Bad Credit
Best Unsecured Credit Card for Bad Credit: Credit One Bank Platinum Visa Credit Card
If you have a bad credit, the majority of your credit card options with good approval odds are secured credit cards. But the major downside of secured credit cards is that you need to come up with a lump sum for the security deposit. However, the Credit One Bank Platinum Visa Credit Card is meant for those with bad credit, but it is unsecured and doesn’t require a deposit.
Although it is really great that you can get this card with poor credit and not pay a security deposit, you will still need to pay a hefty annual fee each year. The annual fee you pay will depend on your current credit score and can range from $0 to $95 in the first year. In subsequent years, you could pay up to a $99 annual fee. Also depending on your credit, the fee could be required in one lump sum or be broken up into 12 monthly fees.
The card does earn rewards, which is more typical for an unsecured credit card. You will earn 1% cash back on a select number of purchase categories: gas stations, grocery stores, mobile phone expenses, internet, cable, and satellite TV services. These categories can cover a large portion of your monthly expenses so you will earn cash back on a lot of your purchases each month.
Because it is an unsecured card, you can be eligible for credit limit increases if you manage your account well and pay your bills on time regularly. You will also get your Experian credit score each month for free and access to the More Program from Credit One Bank, which offers deals to earn up to an additional 10% back on purchases at select merchants. It reports to all of the three major credit bureaus, which is critical to improving your credit score.
The Credit One Bank Platinum Visa Card is a great choice if you really want to avoid a security deposit and have an unsecured credit card. Just be aware that you may have to pay a higher annual fee.
Best Business Credit Card for Bad Credit: Wells Fargo Business Secured Credit Card
Credit cards meant for those with bad credit often don’t give rewards for purchases. Secured credit cards are even less likely to give rewards, but the Wells Fargo Business Secured Credit Card includes very generous cash back and rewards opportunities.
The first thing to note on this card is that it has no annual fee; that is very uncommon for a secured credit card and a huge selling point for this business credit card. This card is also unique in that it gives you a choice between two different types of rewards options. The cash back option will reward you 1.5% cash back for every dollar you spend on the card. You then receive your accumulated cash back as either a statement credit or to an eligible checking or savings account with Wells Fargo.
The rewards option on the card will reward you with one point for every dollar you spend, plus an additional 1,000 points for every month your total expenses are $1,000 or greater. You can then redeem your rewards for things like travel, gift cards, and merchandise. When you choose to redeem your points online, you will also get a 10% points credit, thus increasing the value of your rewards. You will need to assess how much you anticipate your business will spend each month to determine if the cash back or the rewards option is better for you. You will also want to consider if you will use the rewards or if you prefer the simplicity of cash back.
Because this is a secured credit card, you will need to put down a security deposit when you open the account. You can put down as low as $500 or as high as $25,000, which provides great flexibility depending on the size of your company. Your credit limit on the card will be equal to the amount of your deposit. This card also features no foreign transaction fees, which is great if you have business-related travels out of the country.
As you can see, the Wells Fargo Business Secured Credit Card offers a ton of value and requires no annual fee. Start earning rewards or cash back now with every single purchase you make for your business.
Best Rewards Credit Card for Bad Credit: Discover it Secured Credit Card
Discover is known for having some of the best no annual fee cards on the market and their Discover it Secured Credit Card is no exception. It operates like a normal secured credit card, but it stands out thanks to really great rewards earning potential — something very uncommon among secured credit cards and cards for bad credit.
Like all Discover cards, this card has no annual fee. But like all secured credit cards, it does require you to put down a security deposit when you open the account. Your security deposit can be as low as $200 or as high as $2,500, but just know that your credit limit will be equal to your deposit.
The reason the Discover it Secured Credit Card earns our pick for the best rewards card for bad credit is twofold: First, the card earns rewards for all of your purchases. You can earn 2% cash back at restaurants and gas stations, up to a combined $1,000 in expenses each quarter. All other purchases earn 1% cash back without any limit. Second, Discover will give a cash back match at the end of the first year of card membership, thus doubling your cash back. Discover offers this benefit on its cards, which can make them extremely lucrative in the first year.
One great benefit for those looking to improve their card is that this card offers a free monthly FICO score. The card reports to all three major credit bureaus to help boost your credit score over time as well. After eight months of responsibly using your card and paying on time, you may be eligible to get your security deposit back and have your account be unsecured.
The card also features social security number protection for any potential fraud as well as the ability to freeze and unfreeze your account.
If you have bad credit and want a card that will help boost your score while also giving you cash back, the Discover it Secured Credit Card is the one for you.
Credit Scores, Bad Credit, and Your New Credit Card
If you are reading this article and looking for a credit card that has a low credit score requirement, you likely have found yourself in the predicament of having bad credit. Although this is not ideal, it doesn’t mean you are stuck in this position forever. You can start making good decisions and rebuild your credit now.
You should first understand how your credit score is calculated, what factors are important, and what may have lowered your score in the first place. Although each credit scoring model (like FICO or VantageScore) varies slightly in how it determines your exact score, the factors that it takes into account are almost identical.
The most important factor in your credit score is your history of on-time, late, or missed payments. The more payments you make late or miss, the quicker your credit score will drop. If you have had a number of these instances before, that is likely the reason you have found yourself with bad credit. With your new credit card, you should be ensuring that you pay your bill on time every single month moving forward. This is the quickest way to improve your score.
The next most important factor is your credit utilization ratio. This is a measure of how much of your available credit you use on a regular basis. If you have maxed out credit cards before (or even just spend over 50% regularly), this could be another reason for your poor credit. You always want to keep your credit utilization ratio to under 30%, but under 10% is ideal. Be sure to keep your expenses on your credit card to a minimum and your score will start climbing.
The other three factors considered in your credit score are worth significantly less (only 10% or 15% each): hard inquiries, age of accounts, and credit mix. Hard inquiries are when a creditor or lender pulls your credit report when you request a new line of credit. If you have applied for a large number of accounts lately, your score has likely been hit by that. Age of accounts is the average age of all of your lines of credit — lenders like to see individuals that have managed credit for longer periods of time. Credit mix refers to the types of credit you have and how many accounts you have — the more different types, the better. Although these factors matter, their effect is less significant.
The first two factors are likely the primary culprits for somebody that has bad credit, along with things like bankruptcy or accounts sent to collections. You will want to ensure that you are making your payments on time every single month and keeping your credit utilization low. If you can do both of these things successfully over an extended period of time, you will be back on track with excellent credit.