How to get a credit card with bad credit

Having bad credit means you’re a high-risk borrower due to past financial behavior. Maybe you’ve been delinquent on credit card or loan payments — or you’ve maxed out your credit lines.

In more extreme cases you may have not satisfied debts at all, resulting in defaults, collection accounts or bankruptcy. All such activity is listed on your consumer credit reports, developed by TransUnion, Equifax and Experian.

When you have bad credit you may believe you’re ineligible for any new credit card. But accounts are available to people with all kinds of credit profiles, from exemplary to poor.

The key is to pursue the credit card that matches your creditworthiness and fits your needs. Once you have that card you can rebuild your credit so you’re eligible for an even wider variety of credit in the future.

Here’s how to get a credit card when your credit is bad, and some simple ways to raise your rating before you apply.

What type of credit card can you get with bad credit?

Focus your attention on credit cards designed for those with credit scores that are fair or below. You have several options to explore:

Secured cards

These cards function just like unsecured credit cards except you put down a cash deposit to guarantee the credit line. If you fall behind on payments, the issuer can claim the money you owe from the funds it holds in deposit. Luckily, there are plenty of secured cards to choose from.

Many, like the Citi® Secured Mastercard®, don’t offer rewards programs. A few do, though, including the Capital One Quicksilver Secured Cash Rewards Credit Card, which offers unlimited 1.5 percent cash back on every purchase.

Depending on the issuer, your secured card may automatically be converted into an unsecured account if you manage it well for a certain number of months. At that point you’ll get your deposit back. In other cases, you’ll get your deposit back when you close the card with a zero balance due.

Subprime cards

You may also open an unsecured credit card geared toward those with low credit scores. The credit limits for these subprime cards are typically short but can grow over time with responsible use. Though a few come with rewards programs, many do not. For example, the Avant Credit Card doesn’t offer rewards, but the Capital One Walmart Rewards® Mastercard® allows you to earn between 1 percent and 5 percent cash back depending on where you use it.

Retail cards

Commonly known as store cards or retail cards, credit cards you can only use at specific retailers can have more forgiving qualification standards than general purpose cards you can use anywhere. Department stores such as Kohl’s, JCPenney and Dillards will consider credit card applicants with fair credit. Retail cards often charge high interest rates, so be careful to pay your balance in full each month.

Credit union cards

One benefit of being a credit union member is that the institution may grant you an unsecured credit card even if you have credit problems. There are numerous credit union credit cards that anyone can get. To apply, you’ll have to become a member of the credit union, which might be as simple as opening a savings or checking account. These nonprofit financial institutions have a mission to help their members get ahead, which can include aiding them in rebuilding their credit.

Other options you have

Become an authorized user

Yet another way to get a credit card is to piggyback on another person’s account. You may have a relative or close friend with good credit who is willing to let you charge on their account by making you an authorized user.

As an authorized user, you would receive a card imprinted with your name. The issuer would not hold you responsible for the payments, but the payment history will show up on your credit report. As long as the primary cardholder makes all the payments on time and you keep the balance low, it will help you build your credit rating.

Improve your credit before applying

You may want a new credit card right now, despite having bad credit. You’ll have more choices, however, if you improve your credit before starting the application process. Access your credit reports from AnnualCreditReport.com to see what’s holding you back, then take action to move forward.

• Change behavior. If you have credit cards with high balances, your credit utilization ratio is off — and it’s hurting your credit. Pay the debt down so your balances are less than 30 percent of the limit on individual cards — and on your total available credit. If you see delinquencies, start paying your accounts by their due dates again. Late payments will stay on your reports for seven years, but recent activity matters more than old.
• Add positives. Consider a credit-builder loan, which means you borrow the money but the funds remain with the lender. When you’ve repaid the loan, you’ll get the money and a better-looking credit report due to your steady payments. Or, add noncredit accounts to your report. With Experian’s free Boost program you can include your utility and cellphone bills to your report. By making those payments on time, you can add points to your scores and may be able to edge the scores into “good” standing.
• Remove negatives. Collection accounts will appear on your credit reports for seven years, but if you satisfy the debt, the most recent versions of FICO Score and VantageScore will not include the debts in their calculations. If misinformation is appearing on your credit report and dragging your numbers down, file a dispute with the credit reporting agencies. Once that information is gone, your scores will rise.

Bottom line

Bad credit shouldn’t hold you back from getting a good credit card. Once you’ve identified the best card for you, apply — then use it advantageously.

No matter the card or issuer, the rules are the same: Charge at least once a month to ensure that a steady supply of information is added to your credit reports, pay by the due date and keep the balance to zero or very low. Over time you’ll prove that you really are a great credit risk after all.