Credit cards for bad credit or less than perfect credit can either be a blessing or a curse. They can either be the perfect tool to help improve financial opportunities or they can prove to be another setback. Maxing out a high-interest credit card with burdensome charges almost assures users will slip further behind. But the right credit card with reasonable rates and no annual fee ranks among the best assets to help revitalize a credit score. By understanding how credit cards for bad credit work, ways to select the best option, and how to use it the right way, everyday people can improve their FICO score and financial health.
Do Credit Cards for Bad Credit Exist?
Even a cursory search of the internet using the words “credit cards for bad credit” fills the browser with wide-reaching options to apply. Click-bait headlines claim each platform has the “best credit cards for bad credit ” and plenty of them. Consumers would be wise to steer away from these types of enticements because they are very likely to come with unexpected fees, excessive charges, and high-interest premiums. So yes, credit cards for bad credit do exist, but you need to do your research to ensure you find the right credit card to help your situation.
When researching the best cards for your situation, always start with your local credit union. With so many financial institutions to select from, it can become overwhelming. Credit union vs bank, which is better for your business? Local credit unions are not-for-profit organizations, meaning that their profits don’t go to shareholders, but are returned to their members in the form of lower loan rates, higher savings rates and lower fees. By starting with your local credit union, you can be sure that you’ll be matched with the best possible card for your needs, not matched with a card to meet a sales goal.
What Credit Score is Needed to Get a Credit Card?
Before diving into the credit card approval process, it’s important to have a candid discussion about what constitutes bad credit and how low a FICO score will impact your credit card options. The three major credit reporting bureaus — Experian, TransUnion, and Equifax — calculate your three-digit FICO score based on established and evenly employed metrics to arrive at a number between 300 and 850.
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
Approximately 16 percent of adults possess a score between 300 and 579, making low-interest borrowing problematic. Bad credit scores are usually attributed to unexpected financial shortfalls that result in a bankruptcy filing, home foreclosure, or inability to consistently make monthly payments. Given that repayment history comprises 35 percent of a FICO score, losing a job or falling ill can have a devastating effect.
Poor credit scores generally result in higher interest rates, and that makes rebuilding credit scores and histories increasingly tricky. But if you can find a low rate credit card featuring reduced fees, it certainly can prove to be a valuable asset in restoring financial security and borrowing stability.
Credit Cards for Bad Credit Can Improve Your Credit Score
A credit card with a reasonable interest rate could help improve your score and put you on a path to improve your financial quality of life. Elevating a FICO score into the fair or good ranges opens borrowing opportunities, including truck and car loans, personal loans, and even a mortgage. It’s essential to keep in mind there are no quick fixes for bad credit. A strategy that makes incremental gains will win the race. These rank among the best practices employed by people who successfully raise their scores using a credit card for bad credit.
1. Make Consistent Small Purchases
After securing a credit card for a bad credit such as a low rate credit card, resist the impulse to buy the items you have gone without. A new gaming station or night at a fancy restaurant is not necessarily crucial to a quality of life experience. By thinking in terms of long-term goals and taking baby steps to achieve goals, your patience will be rewarded. Consider purchasing only a few necessities like gas or groceries on credit each month within your allotted purchase limit.
2. Pay Charges Off In Full Each Month
Repayment history remains the most significant metric used in calculating a FICO score. By employing a small purchase strategy each month, you can pay off the total balance on or before the due date. This delivers wide-reaching benefits, including not incurring interest payments in many cases. By promptly paying off the balance, you’ll keep more of your money while steadily improving your FICO score over time.
3. Make Timely Payments
Timely payments don’t necessarily mean waiting for a bill to arrive. Credit card users can create an online account that allows them to log in and pay at any time. Consider accessing the credit card account each time you get paid. Make at least a nominal payment, if not the entire existing balance. Multiple monthly payments will build a secure repayment history while preventing interest from accruing.
4. The New Credit Card Improves Your Credit Utilization
Another FICO metric that affects everyday people involves credit utilization. The FICO system allots 30 percent to credit utilization. This basically takes all of your approved borrowing limits, adds them together, and deducts how much you have in immediate outstanding balances. Lenders typically prefer to see credit utilization tallies at 30 percent or less. That’s why it’s critical not to max out a new credit card and pay balances off monthly.
5. Avoid Hard Credit Pulls
Understanding how credit pulls work can prove instrumental in rehabilitating a score. One of the little-known facts about credit scores is they usually drop when applying for a loan. Each time someone applies for a credit card, loan, or line of credit, the lender requests their credit report from one or all three bureaus. That request causes the credit score to dip a few points.
What occurs too often is that well-meaning individuals apply for credit cards for bad credit and effectively shoot themselves in the foot. A more prudent approach is to speak with your local credit union who can articulate your best options and review your application.
Where Can You Apply for Credit Cards for Bad Credit?
There are wide-reaching credit card opportunities designed to attract people with bad credit, and research is necessary to ensure you select the right credit card to help you improve, not hurt, your financial situation. If you’re ready to apply for a low-rate Visa Credit Card to start building or rebuilding your credit, apply online at Peach State Federal Credit Union today.
If you have questions regarding the best credit card for your unique needs, please contact Peach State today, we’re happy to help!
For tips on finding the best credit cards for bad credit, review our "The Best Credit Cards Always Offer These Hidden Benefits" complete guide!
Click here for complete details about Peach State’s Visa Credit Cards, including interest rates and disclosures.