Don't Let 'Bad' Credit Hold You Back. Try One of These Cards to Rebuild Your Credit Score

Having “bad” credit — a FICO score below 580 — can hold you back in many ways. But you can do something about it.

Whether your less-than-stellar credit score is due to you being new to credit or because you’ve made some credit mistakes in the past, using a credit card regularly and responsibly is a good way to build your credit.

But if you’re unhappy with your credit score, you’ll first have to pass the hurdle of getting a credit card in order to start using it responsibly. Most issuers reserve their best rewards cards and highest credit limits for those with good and excellent credit, but there are a handful of secured, credit-building and non-traditional cards designed especially to help those with “bad” credit improve their credit score.

There are some scams and duds mixed in with legitimate credit-building cards, which is why it’s important to vet a card carefully before you apply.

What is a credit card for ‘bad’ credit?

A credit card designed for people with “bad” credit typically has more relaxed approval requirements. These credit cards usually don’t have lucrative rewards or a variety of card perks, but their primary function is to improve your credit so you can eventually apply for the credit cards that do.

There are a number of different credit designations based on different scoring models. The two most common models are FICO and VantageScore. Here’s a breakdown of their respective ranges:

FICO vs. VantageScore models

FICO	VantageScore
Poor: 300 to 579	Subprime: 300 to 600
Fair: 580 to 669	Near prime: 601 to 660
Good: 670 to 739	Prime: 661 to 780
Very Good: 740 to 799	Superprime: 781 to 850
Exceptional: 800 to 850	–

The easiest way to find out where you fall is by using a free credit check. You can check your score for free with the best credit monitoring services. If you’re already a cardholder, most credit card issuers provide a free look at your credit score. Many banks will also offer to let you see your credit score.

It’s also important to check your credit reports — a summary of your credit and payment history used to generate your credit score — from each of the three major credit bureaus (Equifax, TransUnion and Experian) once a week for free from annualcreditreport.com. If you see any errors in your report, you should report them to the bureau.

Who should get a credit card for bad credit?

If your credit score is less than 670, you should consider finding a credit card that can help repair it.

Your credit score helps lenders decide whether you’re a responsible borrower who repays your loans on time as agreed. It determines what kind of loan terms you get on mortgages, student loans, credit cards and auto loans. It’s among the most important facets of your finances.

Pros and cons of getting a credit card for bad credit

✅Pros:

Improve your credit score
Learn good credit habits
Get prepared to move on to more advanced credit cards

❌Cons:

Few additional features like rewards and card perks
Credit-builder cards can have a high APR
You can further damage your credit score if you aren’t ready to use a card responsibly

How to choose the right credit card if you have bad credit

Choosing the right credit-building card will come down to your qualifications and ability to build credit. You’ll also want to make sure there are no hidden fees and look for opportunities to upgrade your card with responsible use.

Eligibility

Credit cards for people with bad credit usually have fewer requirements for approval. Some cards consider your income more so than your credit, or will look at your spending habits via your bank account to determine how risky of a borrower you’d be.

You can also consider a secured credit card. Secured credit cards operate the same as an unsecured credit card (which is your standard credit card), only they require a one-time security deposit upon approval as collateral in lieu of good credit. The security deposit is usually refundable upon sufficient responsible use, and it’ll form your starting credit limit.

Credit building and reporting

Make sure the card reports your activity to the credit bureaus to help you build your credit. The best way to build credit quickly is by having a history of on-time payments on a credit card or loan. Pay your credit card statement in full each month and don’t use more than 30% of your credit limit — or even less, for the best results.

Fees

Sometimes credit cards for people with bad credit can have hidden or high punitive fees. Check the card terms before applying to make sure the card you’re interested in doesn’t have any monthly maintenance fees, high penalty fees or annual fees, if possible.

Ability to upgrade

While this mostly applies to secured credit cards, there are some unsecured credit cards with upgrade paths as well. If you’ve shown responsible use, the issuer may offer you an upgrade to a stronger card. Responsible use typically translates to using your card regularly and paying it off on time.

How to get a credit card if you have bad credit

If you have bad credit, you have two choices to get a credit card: You can choose a card that’s designed for those with bad credit or you can work to improve your credit so that you can qualify for a card with better benefits. There are cards for those with fair credit or good credit that offer cash-back rewards, introductory APRs, welcome bonuses and travel perks.

To reach “fair” credit, you’ll need to have a FICO credit score of at least 580. You reach “good” credit when you maintain at least a 670 score, which unlocks even better credit card options.

How to effectively use a credit-building card

The best way to build credit is to establish a history of on-time payments. So long as you never miss a payment, your credit score should improve. The other thing to remember is to use your credit card like it’s a debit card. That means not spending money you don’t have.

If you overspend and carry a balance, you’ll start accruing expensive interest charges. Credit card debt is much easier to get into than it is to get out of. By paying off the purchases on your card right away, you won’t have to worry about interest charges or credit card debt. Here’s what to remember:

Make your credit card payments on time, every time. Even if you can’t pay the full amount, make sure to pay at least the minimum payment by the due date. The minimum payment will be noted on your monthly bill.
Keep your credit card balances below 30% of your available credit. Your credit line is the full amount of credit that a card issuer is willing to let you use. It’s determined by your income and credit history, and may increase over time. It’s best to pay your bill in full every month, and you’ll want to make sure you’re not using too much of the credit line given to you.
Don’t close accounts that you’re not actively using. If you have open credit card accounts with no annual fee, don’t let them close due to inactivity. The length of your credit history is a factor in your credit score, so older accounts can be very valuable. Having additional credit available will lower your credit utilization. Use the card every few months — even if just for a small purchase that you immediately pay off — so that the issuer doesn’t cancel the card due to inactivity.

By adhering to these simple rules, your credit score may start climbing in a matter of a few months. This can open new financial opportunities, even beyond credit cards.

Alternatives to credit cards

While credit cards are the easiest way to build credit, any on-time payment you make for an open credit account — whether it’s an auto loan, mortgage or student loan — will have a positive impact on your credit score.

There are also credit-builder loans, which work like a reverse personal loan. Rather than getting the money you borrowed upfront like you would from a standard loan, you’ll first pay down the loan in set payments and then get the funds at the end.

If you’d rather not dive into credit cards just yet, credit-builder loans are a good option to try.

FAQs:

What credit score is considered ‘bad credit’?

According to FICO, a score below 580 is considered poor credit (also sometimes labeled “bad” credit). There are many reasons why someone would fall below the threshold of fair to good credit. A bankruptcy or unpaid bills that went into collections are among the more common reasons. Some individuals are classified as having a below-average score after falling victim to identity theft.

What’s the difference between secured and unsecured cards?

Most traditional credit cards fall into the unsecured card category. They’re issued based on your credit score and often come with perks or rewards. Secured credit cards are designed for anyone looking to rebuild their credit. They typically require a deposit for the amount of the credit limit, which will be kept in an account that can’t be accessed until the card is closed. This deposit is typically refundable.

Can you get a credit card after bankruptcy?

Although a bankruptcy can remain on your credit report for seven to 10 years, you may be able to qualify for a secured credit card. It’s important to understand the timing before you get started. In most cases, you can’t apply for a new credit card until bankruptcy proceedings are over. Once you’re ready, look for a credit-rebuilding card that offers limit increases, or even returns your security deposit after a few months of on-time payments.

You may have to start out small, with an initial limit as low as $200, but with patience and responsible money habits you can improve your credit standing.