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If you’ve got bad credit and doubt your ability to be approved for a credit card, don’t worry. There are credit cards designed specifically to help those with lower credit build it back to healthy levels.

A man and a woman sitting and reviewing financial statements while applying for a credit card with bad credit

Can I Still Apply for A Credit Card with Bad Credit?

Yes. Even if you have bad credit, chances are you can still get a credit card.

In fact, some credit cards are designed specifically to help those with limited, poor, or subprime credit build it back up to healthy levels.

What is Bad Credit?

“Bad credit” is a term that changes slightly depending on who you ask and how they interpret things. It usually refers to your credit score. But the truth is, you have more than one credit score and they’re not necessarily the same.

First of all, there are two primary credit score companies keeping tabs on your financial habits, based on reporting from the three credit bureaus (Experian, Equifax and TransUnion).

The best-known credit score company is FICO®, which is used by 90% of creditors. But just within the FICO model, you have more than one credit score, including industry-specific ratings.

The newer competitor, VantageScore, is a joint venture between Experian, Equifax and TransUnion. The intention is to achieve more consistent scoring among the three bureaus.

Both types of base credit scores range from 300 to 850, but they don’t line up exactly. On top of all that, each score has slightly different criteria for what’s “poor” or “fair” or “good” or “excellent” credit.

Neither credit scoring model uses the terminology “bad credit.” So that’s more of an informal expression favored by the general public. Instead, the official terms are “very poor” or “poor,” with “fair” being pretty average.

  • FICO calls 300-579 “poor” credit and 580-669 “fair”
  • Vantage calls 300-499 “very poor,” 500-600 “poor,” and 601-660 “fair”

But let’s keep it as simple as possible. Regardless of which score you’re looking at, you can pretty much assume that less than 600 or so is a poor (or “bad”) credit score and over 800 is excellent.

Check Your Credit Score

So now that you know what the general ranges are, the next step is to actually check your own credit score—or at least one of them.

Credit card providers often give you access to your credit score, but if you don’t have a credit card yet, check whether your bank account offers this perk.

You can also purchase your credit score through one of the three major credit bureaus. Whichever score you get, you’ll likely also see an icon, color coding or explanation regarding whether that score is considered poor, fair, good, very good, or excellent.

If you got bad news, and your credit is less stellar than you’d like, you can take steps to improve it before you apply for a card (which could take your credit score down another few pegs through a hard inquiry).

How to Improve Your Credit Before Applying for a Credit Card

Once you know your credit score, the next step is to get a copy of your credit report so you can see why you have that score.

Once again, you have more than one credit report—there’s one from each credit bureau, and each report varies based on the information reported by creditors.

No creditor is required to report anything, whether positive or negative, so the contents of your report are a bit of a mystery until you start combing through one.

You get one free copy of your credit report every year from each bureau, according to federal law. The easiest place to grab them is from the federally authorized AnnualCreditReport.com.

Now go through and start looking for inaccurate, outdated, or otherwise negative information you can dispute or negotiate.

1.   Dispute inaccurate information

If you discover incorrect information, inaccurate reporting or even fraudulent accounts, you can dispute those errors. That includes a late payment that you know you made on time, a defaulted account you know you paid off, or even a misspelling of your name.

The credit bureau will look into your dispute within 45 days. If you don’t like their findings, you have 15 days to supply concrete evidence and dispute it again. You can also contact the creditor, file a complaint with the FTC, or write a 100-word dispute statement to appear in your credit report.

2.  Dispute outdated information

If you actually did have some late payments, or you defaulted on a line of credit, you won’t dispute those as inaccurate. However, according to the Fair Credit Reporting Act, these negative aspects should not be on your report for more than seven years.

So if you see something older than that, you can send a letter to the credit bureau. It’s very similar to the process for inaccurate info, except you’ll say you want it removed because it’s outdated. If you run into roadblocks, you can dispute it with the creditor as well.

3.  Negotiate with your creditor

If your report is accurate but you’d still like it updated in a more positive light, you can try negotiating with the creditor. Explain why you were unable to make payments on time and ask for a payment schedule.

Or, if you’re able to, tell them you’ll bring the account current (meaning, pay off anything past due) in exchange for removing a late payment from your report. While it might seem like a lot of work to have a single late payment removed, that one-time mistake could have cost you up to 100 points off your credit score.

4.  Take positive steps forward

If you already have other credit cards, you can further increase your credit score with a few good habits.

a)   Pay all of your bills on time

The best way to improve your credit is to make regular, on-time payments. And if possible, pay off your balance in full every month.

These might seem like small things, but they’re actually huge. In fact, your payment history is the most important factor affecting your FICO credit score, worth 35% of the total.

b)   Don’t max out your credit

Whatever your credit limit is, only use a third of it. This contributes to your credit utilization ratio (CUR), which is the percentage of your revolving credit you’re using. It’s worth 30% of your credit score, making it the second most important thing behind payment history.

c)   Keep old accounts but limit new ones

While it’s good to have more credit than you actually use, don’t apply for a bunch of new accounts. Each application is a hard inquiry to your credit report, which can negatively impact your score.

At the same time, don’t close your older accounts, even if you’re not really using them. Your credit history, including the average age of your open accounts, is worth 15% of your credit score.

Keeping old credit lines open also influences your credit utilization ratio. So this one tip is worth the 15% for credit history plus the 30% for your CUR.

What Type of Credit Card Can You Get with Bad Credit?

When you’re ready to go ahead and apply, there are a few types of credit cards you could qualify for, even with bad credit.

1.   Subprime credit card

Subprime credit cards, sometimes called credit builder cards, are designed to help you build credit history and improve your credit score by proving you can make timely payments and be responsible with your credit. And yes, they are offered to people with bad credit (or a limited credit history).

You should expect a lower credit limit and higher interest rate than other cards, and this type of product will often come with an annual fee. Credit card issuers charge higher rates and fees to compensate for the greater risk of late payments and non-payment. But this limited-time inconvenience will get you to the next step.

While some subprime cards are pretty basic, selection that come with cash back rewards, regular account reviews for credit line increases, and other perks, depending on the focus of the card.

2.   Secured credit card

If your credit score is too low for an unsecured card, or you simply don’t have enough of a credit history, you might want to look into a secured credit card. This type of card works like any other credit card, but you have to put up collateral to get it.

The collateral is usually a refundable deposit equal to your entire credit line, which the creditor hangs on to for a set period of time (or until you choose to close the account and graduate to a regular credit card).

You might be wondering why you would put up the full credit amount for the creditor to hold. After all, if you had $300 or $500 lying around, you would just use that to buy stuff, right?

Well, the benefit of putting that money into a secured card is that you are building your credit at the same time.

You can even get a secured card with points or cash back rewards on eligible purchases, and some creditors actually pay you interest on your security deposit. As a bonus, since you’re already providing collateral, chances are there’s no annual fee.

As an example, Credit One Bank has a product with all these perks. If you apply for a credit card and get declined for an unsecured option, you’ll automatically be offered the secured card instead.

3.   Store credit card

If you are unable to qualify for an unsecured credit card, and you don’t have the collateral available for a secured card, another route to go is applying for a store card. It only lets you buy products from that particular store, but if the store reports your payments to the credit bureaus, you can still build credit.

In fact, some stores, like Fingerhut and Conn’s HomePlus, offer credit rebuilding programs specifically for this purpose. You might pay more for merchandise at these stores, and you won’t get the lowest interest rate available, but in exchange, they promise to report your on-time payments.

Once you have established a pattern of paying your bills on time, you can leverage that new credit history to apply for a major credit card.

So as you can see, you’re not out of luck just because your credit score is lower than you’d like. Like anything else, slow and steady wins the race, and if you take the right steps now,  you’ll be winning in no time.

 

When you’re ready to start shopping for a credit card, choose an issuer that will let you see if you pre-qualify, which doesn’t affect your credit score.

 


About the author:

Heather Vale

For over a quarter of a century, Heather has been working as a journalist in all media: TV, radio, print, and online. After establishing her career in Toronto, she has been living, working, and playing in Las Vegas for the past decade. She loves pulling apart complicated topics to make them simple, fun, and easy to understand, especially in the business and financial niches. But she also enjoys writing about the personal side of life, including success, relationships, families, and pets. She approaches everything from a yin-yang perspective, so her passion for wordplay and entertaining metaphors is always balanced with an intense (and some would say annoying) focus on facts and accuracy.




This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.


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