You can avoid dinging your credit score by applying for a credit card (or more than one) and getting denied. This article will show you how to get ready to apply for a credit card when you have a low credit score.
By Jason Steele
After a major economic downturn, millions of Americans now have damaged credit, making it harder to open a regular credit card.
That’s because many have been unable to pay their bills on time after losing their job or getting sick. Even if you have worked hard to build good credit, a high monthly payment can often get on top of you, resulting in a low credit score.
But once you have a poor credit score, it’s common to assume that you won’t be able to be approved for a new credit card. Thankfully, there are several options for credit cards when you have bad credit, and this piece will explain how to get a credit card with bad credit.
Even though there are credit cards designed for people with a poor credit score, that doesn’t mean that every single application is accepted. What do you need to apply for a credit card when you have bad credit?
As with any new financial account you open, you’ll need to be able to prove your identity. Usually, this involves supplying your legal name, date of birth, home address and Social Security number. This information will be checked against public records, such as your credit report.
The credit card application will also ask you for information about your income. Remember, you can include numerous forms of income including not just salary, but income from investments, retirement benefits, child support, alimony and government benefits. You may also include income from your spouse or domestic partner, if you have a reasonable expectation of access to it for the purpose of repaying a loan.
Also, it’s very unlikely that you’ll be approved for any new credit card if you have a pending bankruptcy, foreclosure or other accounts that are currently delinquent or in default. Therefore, it’s vital that you become current on any existing debts and conclude any outstanding bankruptcy or foreclosure proceedings. This way, when you open a new credit card account, you can work on building credit and trying to put that bad credit score or credit rating behind you.
Most credit card applications will require you to agree to a credit check, but not all. There are some credit cards designed for applicants with bad credit that don’t require a credit check. However, many of these so-called subprime credit cards can have very high interest rates and fees. So make sure to look at the interest rate and annual fee before applying!
Yes, many credit cards designed for people with bad credit have a prequalification process. With prequalification, there is no hard pull on your credit report. This means that the inquiry will not be visible on your credit history and it won’t affect your credit score. A credit card for bad credit might be exactly what you need to try to increase your low credit score!
Credit card providers, like any company, can choose not to do business with any person.
And while it’s illegal to discriminate based on things such as race, gender and religion, any company can decide not to do business with a particular customer, based on past experiences.
So if you’ve defaulted on a debt that you owed to a credit card issuer, it’s likely that future credit card applications will be declined by that issuer. This can be true even if your debt has been discharged due to bankruptcy.
Thankfully, these so-called blacklists do not usually last a lifetime, and you may be able to be approved after the debt and your bankruptcy are no longer on your credit history. Typically, this takes seven years.
When you have bad credit, a credit card isn’t useful if you can’t be approved for it. So the first priority should be finding a credit card that you have a reasonable chance of getting. This way you aren't wasting time talking to credit card providers that won't accept your personal credit score.
Next, you’ll want to closely examine the fee structure of the card. Many credit cards for those with bad credit will have very high fees. These can include application fees, setup and maintenance fees, and high annual fees that are sometimes billed as monthly payments.
Thankfully, there are some credit cards for people with bad credit that have much fewer fees.
The two types of credit cards that you can get with bad credit are secured and unsecured cards.
Secured cards work much like a standard, unsecured card, but they require the payment of a refundable security deposit before the account can be opened.
After that, a secured credit card works just like any other card. If you use the card, you must make a monthly payment, and you will incur interest charges if you choose to carry a balance.
But when you close your account in good standing, your security deposit will be returned. Just make sure you know how to close a credit card safely.
Unsecured credit cards are what you might normally think of when someone talks about credit cards. Unsecured cards are a revolving credit line that has no collateral. Your credit limit and APR are based on your credit history and income.
Because they represent far less risk to card issuers, secured cards can have much lower interest rates and fees. However, you’ll still have to pay the refundable security deposit before your account can be opened.
With an unsecured card for people with bad credit, there’s no security deposit, but you’ll likely have to pay significant fees that are not refundable.
So if you’re able to make a security deposit, a secured card can ultimately be a much less expensive option.
Once you exclude secured cards, the other credit cards available are those specifically designed for people with bad credit. These cards will have very high interest rates and fees, but they won’t require the payment of a security deposit.
It depends on what you consider to be a “regular” credit card. There are secured cards offered by major card issuers, and there’s nothing printed on the card that will let anyone know that it’s a secured card.
On the other hand, there are numerous standard, unsecured cards that are issued by smaller card issuers that are specifically designed for people with bad credit. These cards have far higher interest rates and fees than so-called “regular,” unsecured cards from major issuers.
Most major card issuers don’t offer unsecured credit cards for people with bad credit.
See related: What is a good APR on a credit card?
Once you’re able to prove your identity, and have no outstanding bankruptcies, foreclosures or delinquencies, then you should be able to be approved for an unsecured card that’s designed for people with bad credit.
If you’re not approved, then you can contact the card issuer and ask why. You can also request copies of your credit reports to find out what information is on them that is preventing you from being approved.
Getting a secured credit card is just as easy as any other credit card, with one exception. After you’ve completed the credit card application, and been approved, you’ll need to submit a refundable security deposit.
With nearly all secured credit cards, the size of your security deposit will be the amount of the line of credit you receive.
There are a couple types of retail cards to consider.
Store charge cards can be another option for people with bad credit. A store charge card is issued in partnership with a retailer, and can only be used for purchases from that store, either in person or online.
Fortunately, store charge cards are often available to people with bad credit. For example, the Target RedCard is a popular store credit card that offers you 5% off both online and in-store purchases from Target.
And while you may be denied if you have truly bad credit, those with some credit problems may be approved for the card, albeit with just a very modest credit limit. Cards from smaller retailers may be more willing to approve those with bad credit, possibly with just a very small credit line.
On the other hand, standard unsecured credit cards that are co-branded with retailers aren’t usually offered to people with bad credit.
For example, the Capital One Walmart Rewards® Mastercard® requires “good” or “excellent” credit to be approved. However, both Walmart and Target offer debit cards that offer rewards and discounts, but don’t extend credit or require a credit check.
While there are no unsecured cards designed specifically for small businesses with bad credit, there are a few secured cards. For example, BBVA Compass offers its Secured Visa® Business credit card and Wells Fargo offers its Business Secured Mastercard credit card.
When you have bad credit, you need to improve your credit score by opening a new account and using it responsibly or making progress with an existing credit account.
And while most credit cards won’t be available to you, there are several that are designed specifically for your credit situation. By understanding your credit card options, you can choose the right product for your needs as you rebuild your credit. And remember, as you build credit, the more opportunities you have!
Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason’s a commercial pilot. He graduated from the University of Delaware with a degree in History. See Jason on Linkedin and Twitter.