Ask the following when evaluating a credit card for bad credit:
What is my credit score?
Many credit cards give you free online access to your FICO Score or VantageScore. Watching your score rise and fall based on your actions can be a good motivator to keep your credit on track. Some card issuers also offer simulators that show how much your credit could change when you do things like take out an auto loan or pay off a credit card.
What type of credit card is best for me?
Does it report to the three major credit bureaus?
Lenders usually pull your credit report from one of the three major credit bureaus — Equifax, Experian and TransUnion. Each maintains a separate report of your credit history. Most credit card issuers will report your activity to all three bureaus, but that’s not always the case. With some cards, your activity might only be reported to two out of three bureaus, for example. It’s best to get a card that reports to all three, to ensure your history of timely payments is visible to any potential lender.
Are the fees and other terms clear?
You should take a careful look at a card’s terms and conditions before you apply and avoid cards with unexpected fees or terms in the fine print. For instance, some cards may charge expensive set-up or maintenance fees that aren’t advertised on the landing page. Or, you may find that the card doesn’t include a grace period, which means you’ll accumulate interest as soon as you put a balance on the card.
We typically recommend secured credit cards, because they tend to have more straightforward terms than unsecured cards targeted at people with bad credit.
Does it offer the ability to upgrade your card?
Several secured credit cards offer you the ability to graduate to an unsecured credit card after a period of time. Typically, you’ll need to have a record of consistent, on-time payments for at least half a year, though terms vary by credit card issuer.
The upside of this is that your deposit will be refunded and you may be able to get credit line increases that aren’t based on depositing more cash. Plus, you can avoid a credit check from having to apply for an unsecured credit card.
What is the cost to own the card?
It’s important to think about the amount you’ll pay to keep your account open. Ideally, the card should charge no fees. However, fees may be impossible to avoid if your credit is damaged, in which case you should aim for the lowest fees possible. You should also consider the card’s rewards, which can offset the fees and possibly even give you a positive return on your spending. Further, it’s important to look at the card’s APR if there’s any chance that you’ll carry a balance.
Things to watch out for with credit cards for bad credit
Credit repair scams and predatory credit products
Be on the lookout for credit repair scams — one example is someone telling you they can fix your credit quickly, or get negative information removed from your credit reports. There are many steps you can take to repair your credit on your own. And if you’re feeling overwhelmed, there are legitimate nonprofit credit counselors who may be able to help.
Expensive and unclear credit products and fees
Be wary of many credit products marketed to people with bad credit. These may be legitimate products, but can cost you money and cause frustration through expensive fees, high interest rates and opaque terms.
Beware of fees such as:
- Monthly service fees
- Account validation fees
- Authorized user fees
- Express payment fees