Categories

Credit Card Basics

How to Apply for a Credit Card with Bad Credit

When it comes to getting a credit card, there's no need to feel limited if you have bad credit. Although people with poor credit histories may not get approved for every card, there are still two types of credit cards they can look into: secured and subprime.

These types of cards are made especially for people with poor credit or no credit at all and can help you build your score and open financial possibilities. Using a credit card responsibly is one of the best ways to build credit. If you're worried your poor credit history will stop you from getting a card, keep reading to learn more about your options.

How Secured Credit Cards Work

A secured card works almost exactly like any other credit card, but it requires you to submit a refundable security deposit—which is typically equal to the amount of your credit limit—before you can open an account. Once your account is opened, you will be able to use your card exactly like an unsecured credit card, the only difference being that if you default, the lender may hold your security deposit to cover the debt.

Just as with any other card, you will receive a monthly statement, you will be required to pay a minimum monthly payment based on your spending, and you will be charged interest on any balance you carry on the card. Payment history is the most important aspect of your credit scores, so be sure to make all your payments on time.

If you use your card responsibly, your credit scores may increase and you could become eligible for a non-secured card. Your card issuer may also decide to upgrade your secured card to a non-secured card, returning your security deposit and in some cases raising your credit limit.

Because the card's credit line is secured by a deposit, card issuers are able to offer secured cards to nearly all applicants, as long as they can verify their identity and they don't have any pending bankruptcy proceedings.

These cards also come with relatively low fees and comparable benefits to many entry-level credit cards designed for those who are new to credit. For example, many secured credit cards come with basic travel insurance and purchase protection policies. For more information on getting a secured card, see "How to Get a Secured Credit Card." You can also browse Experian's credit card marketplace to see a selection of secured cards.

How Subprime Credit Cards Work

A subprime credit card is an unsecured card that's specifically designed to meet the needs of people with bad credit. But because there is no security deposit required, credit card issuers usually impose substantial credit card fees to account for the increased risk of lending to customers with bad credit.

Many subprime cards will have a one-time fee to open an account, along with annual or even monthly fees. You should also expect relatively high cash advance fees, foreign transaction fees and additional user fees.

With a subprime card, interest rates will be higher than most credit cards and you will often receive a very small line of credit. Finally, these cards will offer few, if any of the travel insurance and purchase protection policies found on most other credit cards.

But as with secured credit cards, many subprime credit card users find that after a year of on-time payments, they can qualify for a different card with lower rates and fees.

What Kind of Credit Card Is Right for You?

Before you decide which type of card is right for you, consider these few things: How much will you be spending with the card? Do you have cash on hand for a security deposit? Are you just using the card to build your credit?

If you don't have enough cash to cover a security deposit, consider saving up before you apply or getting a subprime card. If you're looking to use the card for purchases, consider choosing a card with a lower annual percentage rate (APR) and lower fees.

While subprime cards don't require a deposit, they often come with low credit limits and high fees—resulting in overall less spending power. Secured cards, on the other hand, require deposits upon approval, but can offer more perks and opportunity, as they are typically issued by major credit card companies. Remember that both cards should help you build your credit score, as long as you spend responsibly and make all your payments on time.

Finally, make sure you pick a card that reports your account and payment information to one or more of the three major credit bureaus, Experian, TransUnion and Equifax. The only way your credit can improve is if a record of your account is sent to a bureau and added to your credit file, so it's important to make sure your card your information is being reported.

Check out these cards from Experian's partners to see some of the features of secured and subprime cards.

The Capital One® Secured Mastercard® is a secured credit card requiring applicants to pay a deposit upon approval. Unlike some secured cards that will only offer a credit limit equal to the deposit amount, this card offers an initial credit limit of $200 with either a $49, $99 or $200 deposit depending on your creditworthiness. That means some applicants may only need to pay a $49 as their initial deposit for a $200 limit. This card has no annual fee and is a great option to help you establish or rebuild your credit.
 

The Discover it® Secured card is one of the few secured credit cards that offers rewards for spending. It offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases every quarter. You also earn 1% cash back on all other purchases. Once you're approved for this card, you provide a refundable security deposit of at least $200 to establish your credit limit. Finally, this card will review your account every eight months to see if it can be converted to an unsecured card, giving you the opportunity to get your deposit back.
 

The Avant Credit Card is an unsecured card that comes with a relatively low annual fee. Unlike a secured card, the Avant Credit Card does not require a security deposit. Account information for this card is reported to the three major credit bureaus, and cardholder accounts are periodically considered for credit limit increases, making this a card you can grow with. Because your account and payment history is reported to the major credit bureaus, this is a good card to help improve your credit at a low annual cost.

As you can see, each credit card has its own advantages, so make sure to evaluate your unique situation before sending in any applications. Also consider using Experian's CreditMatch tool, which uses your FICO® Score* to help you find cards that are right for you.

Resources