If you have a credit score below 580, you have bad credit, and you will have limited options when choosing credit cards. This is because only a few financial institutions will be willing to take the risk of extending a credit limit they may not recover. Low credit scores mean the chances of approval for a credit card are low.
The good news is, there are credit card options for people with low credit scores. With bad credit, you must have applied for a loan or credit card before and have been denied. If you are uncertain about your current credit score, contact consumer credit reporting companies, and request a report. Some platforms also offer free services.
Avoid wasting your time on credit card options meant for consumers with good credit scores. If you have low scores, chances are you will be denied if you go for such credit cards. Note that additional applications will damage your credit score even further.
Some indications that a credit card is designed for individuals with high credit scores include low APRs and rewards. All clients with poor credit are likely to be denied. Secured and subprime credit cards are the most popular options for such applicants.
Secured Credit Cards
When choosing a credit card, you are likely to go for an unsecured credit card. Most rewards credit cards are unsecured and usually come with specified credit limits, and applicants must have good credit scores of at least 650 to qualify. Fortunately, you can still apply and get a secured credit card and rebuild your credit scores even with poor credit.
It is also a viable option if you would want to build your scores. After approval, you will be required to provide a security deposit. Generally, your credit line is created up to the amount a financial institution can approve. For example, if you provide a security deposit of $500, your credit limit will be $500.
Once you have received your credit card, ensure you use it wisely. Many issuers will deliver it via mail. Note that it is a real credit card. By using it responsibly, you will build your credit history with the leading credit bureaus. Issues such as late payments with your account may harm your credit scores. Ensure you pay the bills in full and on time.
If you feel that you need to increase your credit limit in the future, organizations allow applying for a credit line increase. If this is approved, you will be required to deposit more money. You can transition from secured to unsecured credit cards. Financial institutions review an applicant’s account from time to time to evaluate whether they qualify for unsecured credit cards.
For example, some of them will review your account every six months to determine whether to refund your deposit and move to an unsecured account. There are numerous benefits of having a secured credit card. First, the issuers report to credit bureaus regularly. Like typical credit cards, your secured credit cards will send your information to the bureaus to update your account.
The security deposit is only used if a borrower defaults on their payment. If your defaulted amount is less than the deposit, you will not need to worry about being sent to collection agencies. The agencies will not hound you for defaulting. However, lateness will still affect your credit scores adversely.
Another benefit of having a secured credit card is that you can get rewards. You can easily offset the amount of your security deposit by repaying your balance regularly and on time. There are a few disadvantages of using the credit cards. First, many people experience difficulties trying to come up with the money to pay for the security deposit.
Secondly, you may be required to pay additional charges other than the deposit. Some of the common charges include application fees, annual fees, and processing fees. This increases the cost of getting a secured credit card. You can compare the fees from different service providers to get the lowest.
Another disadvantage of getting a secured credit card is that you may be required to pay a higher interest rate. This is because financial institutions charge higher rates due to the risk associated with lending to consumers with low credit scores.
Subprime Credit Card
The credit cards are also ideal for people with low credit scores and can help to improve your credit scores. To boost the scores, only complete small transactions you can repay in full every month. If you treat the subprime credit cards like the typical credit cards, you will not pay late fees or high interests. Unlike most options, subprime cards tend to be more expensive.