Best Credit Cards for Bad Credit of February 2023
If you’ve had trouble getting a credit card, then one of these credit cards for bad credit could be the solution. Whether the problem is past mistakes that hurt your credit or having zero credit history to your name, it’s all a matter of finding the right card. Whether you’re looking to improve or start building your credit, here you’ll find our picks for the best credit cards for bad credit.
Bad credit is one of those problems that can affect your life in all kinds of frustrating and costly ways. Landlords can use your credit to decide if they’ll rent to you. Employers can use it for hiring decisions. In most states, your credit can even determine how much you pay for car insurance. As you can see, a bad credit score means a lot more than just paying higher interest rates on loans.
On a positive note, anyone can improve their credit. But to do that, you’ll need to understand what causes bad credit in the first place and what it takes to build a better credit score.
What is considered a bad credit score?
Bad credit scores range from 300 to 579 using the FICO system and 300 to 600 using the VantageScore system. FICO is the most widely used scoring system, and VantageScore is the second most popular. If you’re new to credit scores, it’s good to understand that there’s more than one scoring system — and that your credit score is a number that ranges from 300 to 850.
When you have a bad credit score, you won’t have many credit card or loan options. You’ll likely only qualify for credit cards and loans that are aimed at applicants who have bad credit.
After bad credit, there’s fair credit, which is a FICO® Score between 580 and 669 and a VantageScore between 601 and 660. You can get approved for more financial products once you have fair credit, although you’ll still have a more limited selection than consumers with good or excellent credit.
How to check your credit score
Knowing your credit score is essential if you want to monitor your financial health and take steps to improve your credit. Plus, it can help guide you in choosing the right credit card to apply for as you begin to consider card options. The good news is it’s simple to check your credit score.
One way to do so is to use a free credit monitoring and credit score service. You’ll need to sign up for one of these services and log in to view your score. Examples include Experian CreditWorks℠ Basic and Discover® Credit Scorecard. These services are free to use and provide you with a FICO® Score. As a note, Discover doesn’t require you to be a cardholder to use their service.
Knowing your score can give you a better understanding of where your finances stand and help you make more informed decisions so you can improve your credit score.
Factors that cause bad credit
Certain factors can cause bad credit. Here are some examples:
If you’ve filed for bankruptcy or plan to do so, this can be one of the most significant factors that result in bad credit. Depending on the type of bankruptcy you’ve filed for, this negative mark will stay on your credit for seven to 10 years. It’s important to consider this before filing for bankruptcy.
Missing payments and late payments
Payment history makes up 35% of your credit score. If you’re missing payments or making late payments, this can cause bad credit. If you’ve made payment mistakes in the past, you can make changes from now on. If you want to improve your credit, be sure to pay your bills in full and on time.
High credit utilization
Your credit utilization ratio is how much of your available credit you’re using. If you have a high credit utilization (using more than 30% of your total available credit), this can negatively impact your score. It’s best to use less of your available credit if you want a higher credit score. Using less available credit also shows that you have a smaller percentage of outstanding debt.
Having no credit or minimal credit
If you have little to no credit history, that can be a factor that leads to bad credit. Your best bet is to begin building credit now because the length of your credit history will increase over time, which looks good to creditors.
What are the effects of bad credit?
The biggest consequence of bad credit is that if you need to apply for anything that requires a credit check, you’re much more likely to get declined. Examples include:
- Credit cards
- Personal loans
- Auto loans
- Home rental applications
Even if you get approved, the terms will be worse than they would be for a borrower with good or excellent credit. You may get a credit card, but it won’t have much in the way of rewards or benefits. A landlord could rent to you, provided you pay a much larger security deposit.
When it comes to loans, it’s best to show you an example. Here’s how much a 60-month auto loan for $25,000 would cost, using national APR averages, depending on your credit:
Data source: MyFICO.
Excellent credit would save you $155 per month, and $9,256 in total interest over the life of the loan.
Those are the most obvious effects of bad credit, but they’re far from the only ones. Here are some additional challenges you could deal with:
- Many utilities providers charge security deposits to new customers with subpar credit.
- Most states allow car insurance companies to charge higher premiums to drivers with lower credit scores.
- Employers can run a credit check before deciding whether to offer you a job.
Can you erase a bad credit history?
You can’t completely erase a bad credit history — at least not overnight. But, you do have a couple of options when it comes to removing specific concerns:
If something is inaccurate on your credit report and it’s having a negative impact on your credit, you can dispute it. You can do this by contacting each of the three credit bureaus to file an official dispute. The Federal Trade Commision has a sample letter that you can use. Your best bet is to send your letter by mail, so that you can track it and have a record of it being sent.
If you have a late payment mark on your credit report and you’ve been a loyal customer, it’s worth reaching out to your creditor to request a goodwill adjustment. They may agree to remove that late payment mark, which can improve your credit history. You can make a request by phone, but sending a letter is an even better idea. A letter gives you a chance to explain in detail why your payment was late.
You can also negotiate with your creditor if you’re looking to have a poor mark removed and they’re not willing to remove it right away. For example, if you still have outstanding debt with the creditor, you may ask if they will remove the poor mark if you pay the balance in full right away.
These are a few ways to erase parts of your bad credit history. If none of these options work for you, you’ll need to continue to work on improving your credit history by making smart financial choices.