August 16, 2023
The Discover it® Secured Credit Card reports your payment activity to the three major credit bureaus (Equifax, Experian and TransUnion), provides the opportunity to get your security deposit back after demonstrating responsible card usage, charges a $0 annual fee and earns cash back rewards.
If you have fair or poor credit (typically a credit score less than 580), a credit card tailored to your specific financial needs can be extremely beneficial in repairing credit. Some of the best credit cards for bad credit are secured cards that require a security deposit as collateral for your card’s credit line. Many of these cards come with solid rewards rates, reasonable APRs and $0 annual fees. Using your card responsibly and finding a card that reports to all three major credit bureaus can help you build your credit score quickly, allowing you to upgrade to a card that offers even more valuable rewards and benefits.
How LendingTree Rates Credit Cards?
Our experts rate credit cards based on several factors including card benefits, bonus offers and independent research. Credit card issuers do not influence or have a say in our card ratings. Read our credit card methodology here.How LendingTree Rates Credit Cards?
Our experts rate credit cards based on several factors including card benefits, bonus offers and independent research. Credit card issuers do not influence or have a say in our card ratings. Read our credit card methodology here.Credit limit will equal your deposit and ranges from $200 to $2,500.
This card offers monthly reviews after 7 months to see if you qualify for an unsecured card.
The Discover it® Secured Credit Card hits everything you’d want in a card for poor/limited credit: a $0 annual fee, credit bureau reporting and cash back on every purchase. Plus, after seven months, Discover will begin monthly reviews of your account to see if you qualify to get your deposit back and graduate to an unsecured card.
Who’s this card best for?
The Discover it® Secured Credit Card is one of the top cards around if you need to rebuild your credit. It’s accessible with a $200 minimum deposit, and Discover is clear on when your account will be reviewed for the chance to upgrade to an unsecured card. Plus, it earns 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. 1% unlimited cash back on all other purchases - automatically. And Discover will match all the cash back you’ve earned at the end of your first year.
Credit limit of $300 to $3,000 with no deposit.
The AvantCard Credit Card is a solid option if you want to improve your fair/poor/limited credit with the help of a card that doesn’t require a security deposit.
Who’s this card best for?
If you don’t want to tie up money in a security deposit, and you’re willing to pay a $59 annual fee, the AvantCard Credit Card is an unsecured card worth considering. However, the card does come with a high APR of 30.24% (variable). Additionally, the card is not available to residents of Colorado, Iowa, Vermont, West Virginia or Wisconsin.
Credit limit will equal your deposit and ranges from $200 to $3,000.
The OpenSky® Secured Visa® Credit Card may be your best option if you’re worried that your credit is too bad to get approved even for a secured card, since it doesn’t require a credit check when you apply.
Who’s this card best for?
Since the OpenSky® Secured Visa® Credit Card doesn’t require a credit check when you apply, it’s a solid option for those whose credit is too bad to get approved for a traditional card or even a secured card.
Additionally, the card does not require a bank account for approval. You will, however, have to provide some personal financial information, such as your annual income, monthly housing payment and housing payment type.
The OpenSky® Secured Visa® Credit Card charges a $35 annual fee and has a regular APR of 22.39% (variable). The card also requires a refundable security deposit ranging from $200 to $3,000.
Credit limit will equal your deposit and ranges from $100 to $1,000.
You may be able to graduate to an unsecured card after 12 months of responsible use.
The Amazon Secured Card has a lower minimum deposit than many secured cards, which can be helpful if you’re struggling to put together a $200 or $300 deposit. Plus, you may be able to graduate to an unsecured card after using this card responsibly for 12 months.
Who’s this card best for?
If you shop frequently at Amazon.com and want to build credit, the Amazon Secured Card may be what you’re looking for. Plus, for consumers who want to avoid the $200 minimum deposit many secured cards require, the Amazon Secured Card is accessible with a deposit as low as $100. The card also offers an opportunity to earn 2% back at Amazon.com, Amazon Fresh and more, with an eligible Prime membership.
How LendingTree Rates Credit Cards?
Our experts rate credit cards based on several factors including card benefits, bonus offers and independent research. Credit card issuers do not influence or have a say in our card ratings. Read our credit card methodology here.How LendingTree Rates Credit Cards?
Our experts rate credit cards based on several factors including card benefits, bonus offers and independent research. Credit card issuers do not influence or have a say in our card ratings. Read our credit card methodology here.Credit limit will equal your deposit and range from $200 to $2,500.
This card offers monthly reviews after 7 months to see if you qualify for an unsecured card.
It’s rare to find a card intended for those with poor/limited credit that offers an intro APR on balance transfers — but the Discover it® Secured Credit Card does just that.
Who’s this card best for?
If you have a large amount of high-interest credit card debt that you want to transfer, the Discover it® Secured Credit Card may be the way to go. This card offers a 10.99% Intro APR for 6 months on balance transfers (then a 28.24% Variable APR applies) and charges a 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*.
Initial credit limit of $200 with a $49, $99 or $200 deposit.
You may be able to qualify for an increased credit limit after 6 months of responsible use.
Typically, when you get a secured credit card, you must submit a deposit in the amount of your desired credit limit. But the Capital One Platinum Secured Credit Card offers the chance to get a $200 starting credit limit with a $49, $99 or $200 deposit. Just know, you aren’t guaranteed to get the lower deposit amounts. You can also raise your initial credit line by making a larger deposit — up to a maximum of $1,000.
Who’s this card best for?
If you want to use a secured card to help build your credit without submitting a large deposit upfront, the $0-annual-fee Capital One Platinum Secured Credit Card could be a good fit — as long as you qualify for the lower deposit amount.
Additionally, after six months of demonstrating responsible card usage, Capital One will review your eligibility for an increased credit limit.
The card does, however, come with a relatively high purchase APR of 30.49% (Variable), and there is no rewards program.
Credit limit of $300 to $5,000 with no deposit.
If you have bad credit, it can be difficult to get approved for an unsecured card. The Petal® 1 No Annual Fee Visa® Credit Card uses Cash Score technology derived through analysis of banking and bill payment patterns, rather than relying on traditional credit scores to determine creditworthiness. This card also reports to the three major credit bureaus, comes with a $0 annual fee and offers rewards on some purchases.
Who’s this card best for?
If you’d rather use your “Cash Score” to determine your eligibility instead of your credit score, the Petal® 1 No Annual Fee Visa® Credit Card could be a good fit.
Out of the few available secured credit cards for businesses, the Business Advantage Unlimited Cash Rewards Secured credit card is one of the simplest. It has a $0 annual fee and flat rewards rate, which makes it easy to rack up rewards on business purchases while building credit. Plus, Bank of America will automatically review your account to see if you can transition to an unsecured credit card.
Who’s this card best for?
This card is best for small business owners who want to build their business credit history with a card that can become an unsecured credit card later on. But keep in mind that the minimum deposit is $1,000 — which is pretty steep for a secured credit card.
Credit limit will equal your deposit and range from $200 to $3,000.
This card offers automatic reviews at 6 months to see if you qualify for a higher credit limit.
The Capital One Quicksilver Secured Cash Rewards Credit Card offers a simple cash back rate on everyday purchases. Cardholders earn 1.5% Cash Back on every purchase, every day; 5% Cash Back on hotels and rental cars booked through Capital One Travel (terms apply).
Who’s this card best for?
If you want to build credit while earning cash back at a competitive rate on every purchase, you may like the Capital One Quicksilver Secured Cash Rewards Credit Card. Cardholders earn 1.5% Cash Back on every purchase, every day; 5% Cash Back on hotels and rental cars booked through Capital One Travel (terms apply). Additionally, the $0 annual fee card offers automatic credit line reviews starting at six months to determine if you qualify for a higher credit line.
Most credit cards designed for those with bad credit come with high APRs and/or annual fees. This can make paying off your balance difficult, since so much of your monthly payment ends up going to interest or fees. That’s one reason it’s important to look for a credit card with a low interest rate and/or no annual fee. You should also look at the recommended credit of the card before applying to help ensure you’ll qualify. A card offering a rewards program or welcome offer is a plus too.
Credit Cards | Our Ratings | Rewards Rate | Regular APR | Annual Fee | |
---|---|---|---|---|---|
![]() Discover it® Secured Credit Card
on Discover's secure site Rates & Fees |
Winner + Balance transfer
|
2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. 1% unlimited cash back on all other purchases - automatically | 28.24% Variable APR | $0 |
on Discover's secure site Rates & Fees |
AvantCard Credit Card
on Avant's secure site |
No deposit
|
Non-rewards card | 30.24% | $59 |
on Avant's secure site |
![]() OpenSky® Secured Visa® Credit Card
on Capital Bank, N.A.'s secure site |
No credit check
|
None | 22.39% (variable) | $35 |
on Capital Bank, N.A.'s secure site |
Amazon Secured Card
|
Store card
|
2% back at Amazon.com, Amazon Fresh and more, with an eligible Prime membership | 10.00% non-variable | $0 | |
Capital One Platinum Secured Credit Card
on Capital One's secure site Rates & Fees |
Low deposit
|
Non-rewards Card | 30.49% (Variable) | $0 |
on Capital One's secure site Rates & Fees |
![]() Petal® 1 No Annual Fee Visa® Credit Card
on Petal's secure site |
Unsecured
|
Earn 2% to 10% cash back at select merchants | 25.24 - 34.74% Variable | $0 |
on Petal's secure site |
Business Advantage Unlimited Cash Rewards Secured credit card
Review Coming Soon
|
Business
|
unlimited 1.5% cash back on all purchases | 28.49% variable | $0 | Review Coming Soon |
Capital One Quicksilver Secured Cash Rewards Credit Card
on Capital One's secure site Rates & Fees |
Simple rewards
|
1.5% Cash Back on every purchase, every day; 5% Cash Back on hotels and rental cars booked through Capital One Travel (terms apply) | 30.49% (Variable) | $0 |
on Capital One's secure site Rates & Fees |
The credit scoring method most lenders use to determine your credit rating is the FICO Score, which can range from 300 to 850. Any FICO Score lower than 580 is considered a bad credit score. Another credit-scoring model you may encounter is the VantageScore, which also ranges from 300 to 850. Any number below 600 on the VantageScore scale is considered poor.
FICO Score
Credit rating | Credit score |
---|---|
Poor credit | 300 to 579 |
Fair credit | 580 to 669 |
Good credit | 670 to 739 |
Very good credit | 740 to 799 |
Exceptional credit | 800 to 850 |
VantageScore
Credit rating | Credit score |
---|---|
Very poor credit | 300 to 499 |
Poor credit | 500 to 600 |
Fair credit | 601 to 660 |
Good credit | 661 to 780 |
Excellent credit | 781 to 850 |
Secured credit cards
One of the most attainable options for rebuilding your credit is a secured credit card. They differ from non-secured credit cards because they typically require a refundable minimum deposit that acts as your credit line. Secured cards usually lack fees and are more transparent about their terms, making them the better choice for people with bad credit.
Unsecured credit cards
Unsecured cards — which are more common — don’t require a security deposit, so their credit limits tend to be much higher since they’re not dependent on how much you put down. However, many unsecured credit cards designed for people with bad credit have expensive fees and bad terms, like no grace period.
Unsecured credit cards for bad credit | Secured credit cards | |
---|---|---|
Require a security deposit | ||
Often come with high fees | ||
Credit limit based on your deposit | ||
Credit limit based on your credit history | ||
Can earn rewards | ||
Report payment history to credit bureaus |
Note, there are credit cards available with no deposit, but your options are limited if you don’t have good credit. Furthermore, many unsecured credit cards geared toward people in the lower credit ranges are saddled with expensive fees. The AvantCard Credit Card and Petal® 1 No Annual Fee Visa® Credit Card are two more affordable options that are designed for people with lower credit scores and don’t require a security deposit.
Prequalification means that you’ve met the general standards — typically credit score and other requirements — to qualify for the card of your choosing. Getting prequalified for a credit card doesn’t generate a hard pull on your credit, meaning it will not affect your credit score. To check if you prequalify you can:
If you’re looking for a credit card but you have poor or limited credit, secured credit cards, gas credit cards and store credit cards tend to be easier to get approved for:
A secured credit card requires you to put down a refundable security deposit. Many credit card issuers will approve people with poor credit for a secured credit card since their initial security deposit serves as collateral for the credit line. Some secured credit cards give you the option to graduate to an unsecured card over time with responsible use.
Gas credit cards can help offset the cost of fuel by offering rewards at gas stations or a rewards structure that includes gas purchases. Many gas station-only cards are easier to get approved for, making them a good option for those with bad credit.
Store credit cards offer cash back rewards at select retailers. Store cards are often easier to get approved for by applicants with lower credit scores than general-use credit cards. Approval typically happens instantly and can be completed during your transaction. The Target REDcard™ Credit Card and Amazon Secured Card are two examples of store credit cards.
Ask the following when evaluating a credit card for bad credit:
Does it report to the major credit bureaus?
Each credit bureau maintains a separate report of your credit history. Most credit card issuers will report your activity to the three major credit bureaus, but that’s not always the case. With some cards, your activity might only be reported to two out of three bureaus, for example. It’s best if you can get a card that reports to all three, because then no matter which credit report lenders pull when you apply for other credit products later, they’ll see your history of responsible spending and on-time payments.
Can I earn my deposit back?
If you get a secured card, a nice feature is the opportunity to graduate to an unsecured card with good behavior and get your deposit back. Some issuers offer automatic account reviews within a specified time period (e.g., starting at six months) to have your deposit refunded. Not all secured cards offer this, but many do.
Are the fees and other terms clear?
We typically recommend against unsecured cards targeted at people with bad credit because they may charge expensive fees and come with opaque terms. So, first, you want to make sure you’re clear on what you’re getting when you apply for a new card. And, second, you want to make sure any fees that you’re charged are reasonable. In many cases, building credit with a secured card that charges no annual fee is your best option. You’ll have to submit a deposit, but it can be more affordable in the long run.
When you have bad credit and you’re looking for ways to rebuild, you need to be on high alert to avoid scams and predatory credit products. Be on the lookout for credit repair scams (a scam where someone tells you they can fix your credit quickly, or get negative information removed from your credit reports). You can take many steps to repair your credit on your own. And if you’re feeling overwhelmed, there are legitimate nonprofit credit counselors who may be able to help.
Using a credit card for a year or more can be a good way to rebuild credit. However, you should also be wary of many credit products marketed to people with bad credit. These may be legitimate products, but can cost you money and cause frustration through expensive fees, high interest rates and opaque terms. We typically recommend avoiding unsecured cards for bad credit for these reasons.
Beware of fees such as:
Using a credit card responsibly is a great way to help rebuild your credit. Lenders will report your credit behavior to the three major credit bureaus – Equifax, Experian and TransUnion. Your credit score is then generated from the information in your reports.
You can repair your credit on your own with a little patience and grit. Here’s how to fix bad credit:
Check your credit score and credit reports
There are several ways you can check your credit score for free without hurting it, including signing up for a free LendingTree account or creating an account directly with the credit bureau Experian.
We should note that Experian also offers Experian Boost, which allows payments that wouldn’t normally affect your credit score — such as utilities, eligible streaming services and your phone bill — to build positive credit history on your Experian report.
You’re also entitled to a free credit report every year from each of the three bureaus via annualcreditreport.com — and since the coronavirus pandemic, the bureaus have been offering free weekly reports (available until Dec. 31, 2023).
Get a credit card and use it responsibly
Used poorly, a credit card can bury you in debt and drain your bank account due to interest charges. But used responsibly, it can be a powerful tool for showing lenders you’re trustworthy. Here’s how to do it right:
→ Spend only what you can afford to pay off in full. This will accomplish two things. First, it will ensure you don’t pile up credit card debt. And second, limiting how much you spend on your credit card is good for what’s known as the credit utilization ratio. A good rule of thumb is to spend no more than 30% of your credit limit — for example, spend no more than $60 at any time on a card with a $200 credit limit.
→ Use your card for small, recurring monthly charges. Issuers want to see you’re using your card, not letting it stay dormant. If you’re worried having the card in your wallet might tempt you to overspend, consider using it for a recurring monthly payment, like a HBO Max or Spotify subscription. Then, set up autopay so you never miss a payment.
→ Make sure to pay on time and in full every month. On-time payments are typically the biggest factor impacting your credit score. Payment history makes up 35% of your FICO Score and 41% of your VantageScore. We always recommend paying in full so as to avoid interest charges, but even if you can’t pay in full, you should make at least the minimum payment due so you’re not reported as late to the credit bureaus.
→ Increase your credit limit over time. Secured cards typically come with a lower credit limit. Over time as you work towards graduating to an unsecured card, you will have the chance for a higher credit limit and more flexibility to spend without impacting your credit utilization ratio.
Avoid applying for too much credit
Getting a credit card that reports to the bureaus can help improve your credit score. But once you’ve obtained it, you should avoid applying for new credit too often, because doing so hurts your score the following ways:
→ Putting a hard inquiry on your credit report. Each time you apply for a credit card, a hard inquiry will typically appear on your credit report. This can knock your credit score down by a few points and stay on your credit report for two years.
→ Reducing the average age of your accounts. Length of credit history makes up 15% of your FICO Score, and average age of accounts is part of this. Each time you open a new account, that average age takes a dip.
If you’re having trouble getting approved for a credit card because of your credit, don’t worry — you still have ways to build credit without one in the meantime.
If you have bad credit, the easiest credit cards to get approved for are typically secured credit cards, gas credit cards or store credit cards.
Checking your own credit score doesn’t negatively impact your credit, since it only initiates a soft pull of your credit.
According to FICO, the most popular score used among lenders, a bad credit score typically ranges from 300 to 579.
No. Although some cards claim to offer “guaranteed approval,” there’s no such thing as a 100% guarantee. If you have bad credit, your best chance at approval is with a secured credit card. You could still be denied a secured credit card for a variety of reasons — your credit score might not reach an issuer’s minimum requirements, or you may not have a long enough credit history or meet an income requirement.
Closing a credit card can harm your credit score by impacting the overall age of your accounts and your credit utilization ratio. It is best to keep credit cards open as long as you handle your accounts responsibly by keeping balances low and making on-time payments.
In selecting the best credit cards for bad credit, we opted for cards accessible to people with poor credit histories, but avoided any cards that hit cardholders with opaque terms and expensive fees.
Many of the cards on this list charge no annual fee; those that do come with an annual fee offer enough value to make the fee worth it in certain situations.
Finally, all of the cards on this list report activity to the credit bureaus, meaning using them responsibly can help improve your credit score.
For Capital One products listed on this page, some of the above benefits are provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply.
The information related to the Amazon Secured Card, Target REDcard™ Credit Card and Business Advantage Unlimited Cash Rewards Secured credit card has been independently collected by LendingTree and has not been reviewed or provided by the issuer of this card prior to publication.
LendingTree has curated an exclusive panel of professionals, spanning various areas of expertise, to help dissect difficult subjects and empower you to make smarter financial decisions. Read on for more credit cards for bad credit insights.
The commentary provided by these industry experts represent their viewpoints and opinions alone.
Headshot | Credentials |
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Dean of the School of Business Administration, University of Mississippi |
In what ways does harboring bad credit influence other aspects of your financial future?
Bad credit is very costly and should be avoided since it has broad impacts across many different aspects of life. Bad credit will drive up financing costs, limit financial flexibility, can limit the ability to get certain jobs such as those in the financial industry, and can even drive up insurance costs or other seemingly unrelated products. In general, consumers should pay special attention to their credit and manage their finances effectively, including planning for emergencies and other expenses that emerge over time in addition to the normal expenses that are planned.
If you have bad credit, is it responsible to open a credit card?
A person who is struggling with credit should not open a new card if they are planning on “rolling over” their debt and continuing the spending that got them in the situation in the first place. If they can stop the spending so they do not add to the balance, and get a lower rate, then it could be a good idea to open a new card. The key is to control spending.
What are some positive financial habits one could begin practicing to help repair their credit score?
The easy way to describe the plan is to spend less than you make. Individuals should carefully review where they are spending and what could be reduced. For example, if you have bad credit and are under financial stress, should you really be eating out three times per week? Planning what to spend is important, and can be helped with a written budget, or at least recording where spending occurs. Then, the person can review the spending and figure out what can be reduced or eliminated to start getting the debt down. It will take some discipline since it will require changes, but it works. Another option would be to get a second job and use the income from that job to pay off the debt. That is not sustainable in the long run, so I encourage people to control spending as part of their plan to repair their credit. Of course paying on time and at least the minimum payment is a part of reducing spending and repairing the credit score.
What advice would you give to those with poor credit who are deciding between a secured and unsecured credit card?
If a person has to get a secured card, it is a strong indication that the card issuer has low confidence in the ability for the debt to be repaid. These companies are experts at evaluating credit, so it means that they recognize the person is in trouble and will have difficulty paying the bill. The only way I would suggest a person get a secured card is if they need the ability to charge things and cannot pay any other way. My advice is the same in this situation as before — reduce or eliminate spending that got you in the mess in the first place.
Overall Comments:
Good credit is something to be managed and requires discipline to avoid expensive things that the individual cannot afford. There are many programs that exist that will help people budget and repair their credit, but the main thing to do is to reduce spending and start paying off the debt.
In what ways does harboring bad credit influence other aspects of your financial future?
Having a poor credit history can hurt you in a number of ways. The obvious challenge is that a poor credit history makes additional borrowing more expensive or even impossible — until the credit history improves. Bad credit makes it challenging to secure loans, credit cards and other forms of credit. Lenders and financial institutions typically consider credit scores as a measure of creditworthiness, and if your credit is poor, they may either deny your applications or charge higher interest rates and fees.
Increasingly, landlords are running credit checks on potential tenants and so bad credit can result in being denied a rental application or possibly a requirement of a higher security deposit than someone with a solid credit history. In that way, bad credit makes it harder to find housing.
Employers are using credit checks as part of an overall background check on prospective employees. Some positions require workers to qualify for a fidelity bond — a type of insurance policy that protects the employer if an employee embezzles money. It protects the employer’s assets and provides reimbursement for losses resulting from employee misconduct. When it comes to qualifying for a fidelity bond, insurance companies consider various factors, including the credit history of the employees. Poor credit history can be perceived as an indicator of financial instability or irresponsibility, which may raise concerns about the employee’s integrity and trustworthiness.
Your access to certain utilities, such as electricity, gas or cable, may require a credit check before setting up services. Then there is the personal toll that bad credit takes on the individual and even their family.
Financial stress caused by bad credit can strain personal relationships when you are unable to contribute to shared expenses or fulfill other financial obligations. Bad credit can impact your ability to support family members and can make your dreams and goals very difficult to achieve. The U.S. economy runs on debt. To buy many items — cars and homes, for example, require solid credit. To finance an addition to your home or making major repairs to any important asset often requires the use of financing. In short, bad credit will hinder your ability to start a business, invest in real estate or pursue other financial opportunities that require access to credit at favorable terms.
Dealing with bad credit and the work needed to bring your situation out of a bad credit rating can cause emotional distress, anxiety and feelings of helplessness. One of the foundations of financial security — the feeling of financial well-being — is good debt management. The constant worry about financial stability and the inability to meet financial goals because of bad credit can take a toll on your mental well-being.
If you have bad credit, is it responsible to open a credit card?
The answer to the above question depends on the circumstances, and the intent the borrower has in using the credit card. If the credit card is used to piggyback debt, then opening a credit card account is a bad strategy.
If you open a credit card with the intention of using it to pay off other debts as part of a “piggyback of debt” strategy, it means that you’re transferring or consolidating existing debts onto the credit card. The problem is that if you haven’t changed your financial habits and then consolidate debts onto a credit card, you may be tempted to continue spending or accumulating new debt on the card. This can result in a higher overall debt burden, making it more challenging to achieve financial stability. It is tempting to do this because you can buy time on one monthly payment but if you transfer a significant amount of debt onto a credit card, it can quickly consume a large portion of your available credit limit. This high credit utilization ratio negatively impacts your credit score. It’s generally recommended to keep credit utilization below 30% of your available credit.
One potential benefit of opening a credit card is the opportunity to rebuild your credit history. By using a credit card responsibly and making timely payments, you can improve your credit score over time. Some folks with bad credit apply for a secured credit card. These cards require a security deposit, which serves as collateral and reduces the risk for the credit card issuer. Secured cards can be an effective tool for rebuilding credit since responsible use and timely payments are reported to credit bureaus. But if credit cards are what got you in trouble to begin with, then opening another credit card could be a bad idea. Responsible use and careful budgeting and discipline are the keys.
What are some positive financial habits one could begin practicing to help repair their credit score?
Like so many areas of our lives that need habit change, such as health, diet, fitness, time management and controlling stress management, our credit management relies on good habits. And to pull ourselves out of a bad credit score usually means habit change. The experts say that to repair your credit history, good budgeting and making payments on time are the most critical factors. Setting up digital reminders that a bill is due, and using auto pay also helps. So too, is a frequent and consistent monitoring of your credit score by a regular review of your credit report. You can obtain a copy of your credit report from each of the major credit bureaus (Equifax, Experian and TransUnion) and review it for any errors or inaccuracies and progress. Watch to see your score rise. Watch to see your credit utilization fall. It’s really common sense. Paying down balances and using credit smartly can help improve your credit score.
Some people find that they need professional guidance to repair their credit. A CPA or a credit counselor are good choices.
What advice would you give to those with poor credit who are deciding between a secured and unsecured credit card?
I believe I addressed this, partly, above. But here is some more content. Secured credit cards require a cash deposit as collateral, typically equal to the credit limit. You can’t spend more than that on the credit card and they are very much like a debit card. Secured cards are generally easier to obtain for individuals with poor credit because the collateral mitigates the risk for the issuer.
Unsecured credit cards are what most people use and they are a form of “plastic” that can get you in trouble. You can spend up to the credit limit. Unsecured cards do not require a cash deposit as collateral. They are extended based on the applicant’s creditworthiness. If your credit is really bad, an unsecured credit card may not be an option.
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Professor of Finance, California State University Dominguez Hills |
In what ways does harboring bad credit influence other aspects of your financial future?
Think of bad credit as your medical problems such as obesity or high blood pressure or high cholesterol. Right now, you may not see the effect of your bad credit, but it does create havoc in your financial future. You may find that future employers are looking up your credit before they are willing to hire you. If you need to buy a home because your family is growing, bad credit may slow down or even stop that process. Till the time your credit improves, you will find that you are consistently paying more in interest on your credit card bills, and that can also stifle your efforts in saving money for your future (say, for down payment on a house, or your child’s education or your retirement). Bad credit can be considered as a silent killer that has to be controlled if you want to have a successful, financial future.
If you have bad credit, is it responsible to open a credit card?
Opening a credit card when you have bad credit can work for you, provided you have strong discipline in paying your credit card bills when due. If you don’t have financial discipline in paying your bills on time, then opening a new credit card will not be a wise choice, and you are better off without such credit cards.
What are some positive financial habits one could begin practicing to help repair their credit score?
The simplest financial habit is to pay your bills on time. You can start by enrolling in auto payment plans that are offered by vendors such as utility companies, mortgage companies and credit card companies. This will take the pressure off of having to remember due dates for those bills. Alternatively, you can put the due dates of all of your bills in your phone calendar, and make sure that you pay those bills within a week of their due dates. A good way of determining if you should “charge” your credit card for a purchase is to ask yourself: Do you have the money to pay for such a purchase? If so, then go ahead and charge it on your credit card. And then pay for it when the credit card bill becomes due. But if you don’t have the money to buy that item, then don’t charge it, and save money until you have enough money to buy it. Always practice self-discipline in your shopping habits by ensuring you have enough money to “charge” those purchases. If not, then wait until you have that much money. Otherwise, you will be using your credit card as your own ATM, and will eventually be forced into financial ruin.
Sammi Panko is a web content coordinator covering credit cards at LendingTree.
Before joining LendingTree, Sammi worked as a content marketing and paid media specialist at a digital marketing agency, a marketing specialist covering topics in home appliances and real estate and a freelance writer. From her experience writing about personal finance and homeownership, Sammi is passionate about guiding consumers toward making wise financial decisions
Sammi earned a bachelor’s degree in communications with a focus in advertising from Appalachian State University in Boone, North Carolina.
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