When you have bad credit, the best card to help boost your score is typically not one that offers rich rewards or exclusive perks. Instead, you want a card that will report on-time payments to the credit bureaus and is light on fees.
Cards for bad credit tend to have more lenient approval criteria and are usually secured cards that require a security deposit. But many of these cards still come with high fees and opaque terms.
High APRs and/or annual fees
Many credit cards that are targeted to people with bad credit come with high interest rates and opaque terms. While some credit card issuers may offer a low introductory rate to lure you in, these cards often come with high standard fees like annual fees, balance transfer fees and late payment fees.
Credit card payments are typically due at the end of each month, and if you fail to pay your bill in full, the credit card company can charge you late fees, increase your APR or even report your account to the credit bureaus. It’s also important to keep your credit utilization ratio low, which is the percentage of your available credit that you’re using.
To get the most out of your credit card, look for a card that offers a low introductory APR, no or minimal fees and a path to upgrade after you’ve established responsible credit habits. You should also look for a card that reports your credit activity to all three major credit bureaus.
A card that charges excessive fees can quickly make a poor credit score even worse. For example, some cards for bad credit charge hefty annual fees and others charge excessive returned payment fees. Generally, it’s best to avoid any card that has too many fees that outweigh its perks and benefits.
Another fee to watch out for is a foreign transaction fee. These are charged for any purchases made overseas or online with a foreign merchant. These fees are often higher than 1% to 3% of the total purchase amount.
When selecting the best cards for bad credit, WalletHub opted for options accessible to people with limited credit history but avoided cards that hit consumers with expensive fees and opaque terms. This is why a secured card, which requires a security deposit, is typically the best option for people with bad credit. However, if you prefer the convenience of an unsecured card, look for one that offers free supplementary cards for family members or other adults.
Poor credit score
It can take a big toll on an individual and their family. Harboring bad credit can make it harder to get access to financial products like mortgages, auto loans and even personal loans. It can also affect other things like utility contracts and a person’s ability to secure employment.
Bad credit can be a result of mistakes in the past or simply not having enough experience with credit. While it’s possible to rebuild credit, the process is slow and usually involves secured cards that require a deposit as collateral. Additionally, individuals with poor credit must be careful not to open too many new cards in a short period of time, as each hard inquiry on their credit can take their score down. A high debt-to-credit ratio also hurts scoring. With time, however, bad marks can fade, allowing those with bad credit to qualify for 30-year mortgages and receive more favorable terms on other types of loans.