If you have bad credit, it can be difficult to get approved for loans and credit cards. But it is not impossible. Even people with bad credit have options – which we will now explain.
What exactly is a bad credit score? When we’re talking about obtaining credit via credit cards, the magic number is somewhere between 620 and 650. If your credit score falls below 650, you’re going to have a difficult time obtaining credit from some of the larger lending institutions, and if it’s below 620, you’re going to have a difficult time obtaining credit from anyone — including smaller financial institutions like credit unions and independent marketplace lenders.
There are, however, some products for which you’ll have an easier time qualifying. Before you apply, make sure you’re prepared to be responsible with your new line of credit so you can boost your score and credit history rather than damaging it further. The best way to do this is to spend within your means by creating a budget and sticking to it. Here are some helpful tools to help you do just that. Remember to always pay your bill off in full on or before the due date each month to establish good credit.
Here are the products and topics we’ll be discussing today:
Check if You’re Pre-qualified
Before you apply for a credit card check if you’re pre-qualified from a variety of institutions. This does not hurt your credit score and is a good first step when looking to apply for credit. You can read our complete guide to getting pre-qualified for a credit card here.
Build Credit with Secured Credit Cards
If you are trying to rebuild your credit, one of the best approaches is to get a secured credit card. In order to get the card, you will have to write a check to deposit with the credit card company. This money will be your line of credit.
In order to effectively rebuild your credit, you must actually use the card, and we recommend not charging more than 20% of your credit line. For example, if you have a $500 credit line, you should not charge more than $100. Then, pay off your balance in full every single month. You can even build credit with $10 a month on a secured card and see your credit score rise.
After you’ve consistently managed your secured card well over a period of time, you may be able to increase your credit line beyond your initial deposit or migrate to an unsecured credit card. With most companies, this is a tedious process that you’ll have to initiate. You also aren’t guaranteed to get results even after you’ve made a request.
Discover operates differently than most companies in this realm, making it our number one pick for secured cards.
If you’re looking for a secured credit card, look no further than the Discover it® Secured. On top of being great for people with a bad credit score, Discover will also accept applicants who have no credit history at all. Discover offers great ways for you to rebuild your credit and be on the way to an unsecured card.
Magnify Glass Pros
- Bankruptcies May Be OK If you have a Chapter 7 bankruptcy on your credit report, it won’t automatically disqualify you from getting approved for a Discover it® Secured. However, there are no guaranteed approvals. This is a positive if you’ve had trouble getting a credit card in the past.
- Helps You Rebuild Your Credit This is a legitimate way to rebuild your credit when you don’t qualify for other cards, or the agreement you are offered by another company is laden with fees and high interest rates.
- Offers a Rewards Program Not only can you rebuild your credit, but you’ll also earn rewards points as you do so. This is a great feature that many secured cards don’t offer and is a reason why we consider Discover number one. Earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically. For new cardmembers, Discover matches the cash back you earn at the end of your first year of card membership, automatically.
- Easy to Transition to a Discover Account Without a Security Deposit Starting at eight months, Discover automatically reviews your account to see if you’re eligible to have your security deposit returned while continuing to enjoy the card benefits. This is typically a process you’d have to initiate with other lenders. It’s good to note that Discover reviews all loans, and credit cards including Discover when making their decision.
- Rewards Limited There’s a quarterly spending limit on the higher rewards rate — 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically. Regardless, that’s $20 back, which is a great reward when your goal is to increase your credit score.
- Be Careful Not to Overspend As with the other cards in this review, you have to be careful that the rewards program doesn’t entice you to overspend. Otherwise, you run the risk of damaging your credit score further. Make sure that your primary goal, to raise your credit score, supersedes the urge to spend too much money in order to get rewards.
Our Credit Union Favorite
If you’re looking to open a credit card with bad credit, it can be hard to find a card you qualify for. That’s where credit unions come in. They are sometimes more accepting of your credit history and have cards especially designed for people with low credit scores — helping your approval chances.
Georgia’s Own Credit Union offers a variety of credit cards all with low interest. The Visa® Classic from Georgia's Own Credit Union is positioned toward those who need to rebuild credit and boasts a low APR. When you apply for a credit card on Georgia’s Own website you are directed toward an application that is for all credit cards they offer. This means that depending on your creditworthiness, you may not be directed to the Visa® Classic from Georgia's Own Credit Union as an option. Therefore, if you want to apply directly for the card, the best bet is to speak with a loan officer who will tell you if you’re pre-approved for the Visa® Classic from Georgia's Own Credit Union.
Magnify Glass Pros
- Good chance of getting approved Georgia’s Own tailored this credit card toward those needing to rebuild or re-establish their credit history. This gives those with bad credit a greater chance of being approved. Also, if your score is above 620, you are more likely to be approved.
- Fair APR This card has a fair APR ranging from 11.99-16.99% variable. This is significantly lower compared to other cards targeted to people with less than perfect credit, with APRs as high as 25% or more. Although your goal is to pay every bill in full and on time each month, if you keep a balance, this low APR won’t accrue as much interest as other cards.
- Have to join the credit union In order to get this card, you have to join Georgia’s Own Credit Union. Anyone can become a member regardless of residence. If you don’t qualify for Georgia’s Own free eligibility options, you will have to join the GettingAhead Association, which has a $5 annual membership fee. The best bet is to speak to a loan officer (404-874-1166) and see if you’re pre-approved for the credit card, and if pre-approved, you can join GettingAhead while completing your credit card application. All members will also need to keep $5 in a savings account that must remain in the account while you have the card open.
- Foreign transaction fee of 2% of the U.S. dollar amount of each transaction Make sure to leave this card at home when you travel abroad as you’ll be charged a foreign transaction fee of 2% of the U.S. dollar amount of each transaction. This is slightly lower than most cards, which charge a 3% foreign transaction fee, yet high enough to increase your bill significantly if you make purchases abroad.
- No rewards program There is no rewards program for this credit card. Georgia’s Own offers several other cards that have rewards programs, but you may have a harder time qualifying if you don’t have a good credit score.
Best for Cash: Personal Loans
If you’re looking to get some cash in your pocket, credit cards in general aren’t your best answer. Cash advances are not ideal, and putting a purchase you can’t currently afford onto a credit card with a high interest rate attributable to your not-so-great credit score is going to be an expensive venture.
Instead, you’ll want to consider personal loans. They’re admittedly a little more work up front with the application process, but the savings can be worth it. You can check to see if you are prequalified without impacting your credit score at most lenders. And LendingTree has created a tool that lets you compare rates from dozens of lenders at once, without impacting your score.
LendingTree offers a one-stop tool that could help borrowers find numerous personal loan offers. After entering some basic information, you may receive offers from up to five different lenders in a matter of minutes based on your creditworthiness. If you prefer to go directly to the lender’s site you can use one of the options listed below.
LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender. Terms Apply. NMLS #1136.
As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.49% (3.49% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected). Terms Apply. NMLS #1136
Magnify Glass Pros
- Check Multiple Offers at Once You can check personal loan offers from a wide range of lenders including Avant, LendingClub and Best Egg. The entire process happens online for no-cost and is fast and easy.
- Soft Pull on Your Credit LendingTree performs a soft pull on your credit in order to provide you accurate loan offers from lenders. This does not affect your credit score and can give you a good picture of what to expect if you’re approved for a loan.
- Need to Create an Account to View Offers The only way to view your personal loan offers is to create an account at LendingTree. This is a minor step, but it does allow you the ease of saving your offers so you can review them later.
Avant offers personal loans even to those with less-than-desirable credit. Because there is no prepayment penalty, you can pay off your loan before the end of your term without consequence.
Avant is an online lender that offers personal loans ranging from $2,000 to $35,000. ... Read More
*If approved, the actual loan terms that a customer qualifies for may vary based on credit determination, state law, and other factors. Minimum loan amounts vary by state.
**Example: A $5,900 loan with an administration fee of 4.75% and an amount financed of $5,619.75, repayable in 36 monthly installments, with an APR of 29.95% would have monthly payments of $250.30.
Based on the responses from 11,574 customers in a survey of 210,584 newly funded customers, conducted from 1 Feb 2018 - 1 Aug 2019 95.05% of customers stated that they were either extremely satisfied or satisfied with Avant. 4/5 Customers would recommend us. Avant branded credit products are issued by WebBank, member FDIC.
Magnify Glass Pros
- Apply Online The entire Avant application process happens online. This saves you the hassle of filling out paperwork and visiting a local branch.
- Check Your Loan Options Before You Apply Avant allows you to check your Loan Options that you would be offered with a soft pull on your credit. This will not impact your credit score. This is helpful if you’re shopping around for different rates and gives you a realistic picture of what to expect should you choose Avant.
- Could Save Money over Subprime Credit Cards Depending on the interest rate and upfront fee percentage you are offered, a personal loan from Avant could save you money over putting purchases on a subprime credit card. The ability to preview your interest rate can also help you compare between personal loans and other possible options.
- High Interest Rates Because you’re a subprime borrower, you’re not likely to qualify for the lowest interest rate offered. You’re more likely to be offered something closer to the 35.99% rate. This is a very high rate, and will add substantially to your loan repayments.
Avant is easier to apply for as the application process will take place online, but if you’re willing to go somewhere in person, you can also apply with OneMain Financial. Its application is also online, but in order to be approved, you’ll have to show up at a local branch with documentation backing the information you submitted at home.
- Loan Amount
- $1,500 – $20,000
- 24 to 60 Months
- APR Range
- Hard Pull
- If you apply for a loan, a hard pull will occur, which will place a credit inquiry on your report and can lower your score.
OneMain Financial offers quick turnaround times and you may get your money the same day... Read More
Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. Depending on the state where you open your loan, the origination fee may be either a flat amount or a percentage of your loan amount. Flat fee amounts vary by state, ranging from $25 to $400. Percentage-based fees vary by state ranging from 1% to 10% of your loan amount subject to certain state limits on the fee amount. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes.
Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.
Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $14,000. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.
Magnify Glass Pros
- Same-day funds when you get a prepaid debit card or check, up to $10,000
- No prepayment penalties
- Several locations across 44 states
- High APRs up to 35.99%
Last Resort: Subprime Credit Cards
Subprime credit cards are those that lending institutions issue to those with “bad” credit. They are not a good solution to your credit woes. They almost always come with high interest rates and a litany of fees — both of which make it difficult to use this product responsibly.
For example, First Premier makes a business out of lending to subprime borrowers with bad credit. Most of their applicants are only awarded a $300 line of credit. That’s after they pay up to a $95 fee just to apply (which is not a common practice in the credit card industry) and a $75 annual fee. If you are approved for a higher credit limit, your annual fee for the first year may be higher ($79-$125). In the second year, the annual fee drops ($45-$49), but at this point you are charged a $6.25-$10.40 account servicing fee every single month.
The cherry on top? The card’s APR is 36%. Heaven forbid you are ever late on a payment — your balance will skyrocket with the insanely high interest rate. Don’t forget about the late payment fee — up to $39.
Another example is Credit One Bank — not to be confused with Capital One Bank, though their logos do look eerily similar. Not every Credit One Bank credit card comes with outrageous fees. But if you are a subprime borrower, you’re likely to qualify for higher rates.
Your credit may not be great, but that doesn’t make subprime credit cards a “fair” product. You may qualify for other, better options that aren’t as laden with fees. That’s why we recommend you first check if you’re pre-qualified for offers then look at store cards and personal loans before choosing a subprime credit card.
Bad Credit FAQs
Co-branded store cards can be used as payment anywhere the credit card company, such as Mastercard or Visa, is accepted. Private label cards can only be used at the company’s store. For example, if you get a private label card for New York & Company (meaning it is not co-branded with Visa or Mastercard), you can only use it for purchases at New York & Company. You would not be able to use it at any other store.
Your best bet is to ask. If you are applying online, pick up the phone and call or use the company’s online chat if available.
If you have a physical card in front of you, you’ll notice that store cards always have the associated credit card company shown on the front, whether that be Visa, American Express, MasterCard, or another.
Private label cards tend not to display this information, though a major financial institution that a lot of companies work with for their private label cards is Comenity. If you have a card associated with Comenity Bank, it is likely a private label card.
No. Most businesses have an online application for their store cards.
Personal loans are typically issued by more reputable lenders who aspire to more transparency than those in the payday loan space. Payday loans are often advertised as having interest rates somewhere between 10% and 30%, but that interest is charged over a short period of time, making their effective APR (annual percentage rate) much higher. Some payday loans have an effective APR of 400% or more.
The lender isn’t likely to tell you that, though. Many businesses in this space are predatory. Payday loans also tend to come with outrageous fees.
While rates and fees on personal loans for those with bad credit aren’t ideal, they’re more than substantially lower than those of payday loans. Make no mistake about it: despite enticing advertising promises of deceptive payday lenders, personal loans are an infinitely better option.
Borrowing cash from your credit card company often comes with a fee of 1%-5%. That may not seem terrible when you look at the upfront fees of many personal loans, but you also have to account for interest.
Unlike purchases you charge to your card, interest on cash advances starts accruing immediately. You do not get to wait for your next statement to be issued. The interest rate for cash advances is also often higher than that of regular purchases.
A personal loan is an installment loan with a balance that will go down if you pay the minimum payment each month. This makes it far easier to manage than debt accrued via a cash advance. If you only pay the minimum payment on a cash advance each month, your balance will go up at a quick pace, potentially spiraling out of control.
First of all, the less you charge, the easier it will be to pay back. Since you have a bad credit score, you may have had issues with charging too much in the past and being unable to pay it off.
Secondly, around 30% of your credit score is made up of your credit utilization ratio. You find this ratio by dividing the amount of credit extended to you by the amount you have borrowed. By borrowing only 20% of your available credit, you reduce the risk of having your current balance negatively impacting your credit score.
It can sometimes take a year or more to see your score improve by 100 points if you are doing everything correctly and responsibly.
Yes, but only if you use them responsibly, paying the balance off in full every month. Keep in mind your credit utilization ratio here, too.
Potentially. Ten percent of your credit score is made up of something called “credit mix.” You don’t need to have every single type of credit in your credit report, but you should have more than one type. Here are the five that count:
- Credit cards
- Installment loans
- Retail accounts
- Finance company accounts
- Mortgage loans
Conceivably, if you have a mortgage or business debt tied to your Social Security number or EIN, you might be able to get away with rebuilding your score through a personal loan (which is an installment loan). The key is to manage all of those debts well — and to do so consistently — especially since you already have bad credit.
No. Transactions on prepaid debit cards do not get reported to the credit bureaus. Also, it’s important to remember that many prepaid cards come with a ton of fees.
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