Consumers with poor credit and a low credit score may feel downhearted about rebuilding their credit or obtaining new credit, but many credit card companies offer cards for customers with below average credit. One of the best ways to improve your credit is through the responsible use of a credit card and there are several options available based on your credit score.
Poor credit is generally said to be a score of 600-649 while bad credit is a score below 600. Depending on your score, you may need to apply for a secured credit card with a guaranteed approval in order to rebuild your credit or you could qualify for an unsecured credit card with a high interest rate, a high annual fee and/or a low credit line. Prepaid debit cards, unlike credit cards, do not provide a line of credit and do not influence your credit history, so this post will concentrate only on credit cards.
With a secured credit card you need to make a cash deposit which is then used as your line of credit. After using a secured credit card responsibly for a period time, your credit will improve and you can graduate to an unsecured regular credit card. We recently wrote about the Wells Fargo Secured credit card which is currently one of the better options out there.
If you are able to get an unsecured credit card, make sure you apply for a card that is appropriate for your credit standing. Applying for cards that you don't qualify for and it's likely that you'll be rejected, and if you apply for too many cards in a short time, your credit score could suffer.
It's probable that you won't find a card with an APR lower than 15%, and it's very likely that you won't qualify for a rewards credit card, but by building your credit and establishing responsible spending habits, you could soon graduate to a card with better interest rates and maybe even rewards. If you have bad credit, you could look into your local credit union as they are more likely to accept your application and they aren't allowed to charge interest rates higher than 18%.
You should know that the lower your credit score, the more likely you are to pay in interest for any balance you carry on the card. If you can, pay off your balance each month rather than just making the minimum payment to avoid paying more interest than needed.
So what are some of the best offers out there right now in addition to the Wells Fargo Secured credit card?
The DCU Visa Platinum Secured card from the Digital Federal Credit Union (you borrow against your DCU savings account) is a no-brainer. With a low APR of 11.5%, no annual fee as well as no fees for cash advance fees or balance transfers, the card also offers benefits including travel accident insurance, car rental collision coverage and Visa travel benefits.
The Capital One Secured MasterCard has an APR of 22.9%, an annual fee of $29 and requires a low minimum deposit of $49, $99, or $200 with a $200 credit limit. It isn't a no-brainer like the DCU Secured card, but it's probably one of the best alternatives.
Simply getting a credit card will not help you build, re-build or re-establish your credit history. You need to make minimum payments with all of your creditors on-time every time and try to keep account balances low relative to your credit limit. These are key to rebuilding your credit history and making a better financial future for yourself.