Credit cards designed for bad credit help consumers with low scores rebuild their credit. These cards typically have a secure deposit that serves as the card’s credit line and minimize punishing fees like high annual rates, account opening fees and revolving balance penalties.
Some bad credit cards even offer chances to graduate to unsecured cards after practicing responsible financial habits. However, you should also keep an eye out for excessive fees.
High interest rates
A credit card for bad credit may be a useful tool in helping you rebuild your score and achieve financial health, but it can also come with high interest rates. These can make it hard to keep paying off your debt and can stifle your efforts to save for other goals, such as buying a home or putting away money for retirement.
Many cards that cater to bad credit (defined as a FICO score below 580 or a VantageScore below 660) have terms and conditions that are difficult for consumers to understand. Some have annual fees, account opening fees or other add-ons that can make owning a card very expensive.
Card issuers are in business to make a profit and, for credit cards, this comes from interest income on money borrowers borrow. Interest revenue helps fund rewards programs, 0% periods and other benefits. Credit cards for bad credit tend to have higher rates than those for good credit because more people pay late or not at all.
Many credit cards for bad credit charge fees such as annual ownership costs, finance charges when carrying a balance and foreign transaction fees. Additionally, there are often late fees for paying a bill by its due date and over limit fees for charging more than your credit card’s credit limit.
It’s important to watch out for credit cards that have excessive fees since they can quickly add up and make it difficult to break the credit card debt cycle. These extra charges may also hurt your credit score and counteract your efforts to improve it.
The best credit cards for bad credit offer chances to graduate or upgrade to better terms as your score improves with on-time payments and responsible use. However, it’s important to research and compare options to find the best credit card for your financial situation. There are several types of cards available, including secured credit cards that require a deposit that serves as your credit line and unsecured credit cards.
Lower chances of approval
Bad credit cards typically have lower chances of approval than those offered to people with good credit. This is because the risk to the card issuer increases when you have a low FICO score or VantageScore. This can impact your ability to qualify for other financial products, such as loans and housing.
People with bad credit can still receive a credit card, but their choices may be limited. For example, some cards require a security deposit that acts as your starting credit limit. This can be refunded upon sufficient responsible use or when you close your account.
Some cards also offer perks, such as cash back rewards and $0 liability for unauthorized charges. However, credit limits are usually low and these cards can add to your debt if you carry a balance. Ultimately, bad credit cards can help you rebuild your credit, but it’s important to manage your spending responsibly and pay off the balance each month.
Designed for people with bad credit
Whether you have a bad credit score or you simply don’t qualify for many other credit cards, there are plenty of options to help build or rebuild your credit. However, they may come with expensive fees, high interest rates and opaque terms.
Even so, if you have fair or poor credit (a FICO or VantageScore between 580 and 660), you should still be able to find cards that offer cash-back rewards, introductory APRs and welcome bonuses. Some of these cards also report on-time payments to the major credit bureaus, which can improve your credit history over time.
In addition, some credit cards designed for people with bad credit offer chances to graduate to other cards once your credit improves. In these cases, you typically need to provide a security deposit or other form of collateral upfront, while the card issuer will set a low credit limit for you. This can be an effective way to build credit without risking much of your own money.