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The Best Credit Cards for Bad Credit

by on June 9, 2011

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It’s an unfortunate fact that credit cards for bad credit tend to have terrible terms, and that issuers often market their worst financial products to those who can least afford them. There are however, a few diamonds in the rough that carry higher fees than card for great credit, but are not horrible either. (By the way, before you get started, you should understand what a secured credit card is and how it works. For an explanation, click here).

Shiny advertisements scream out cards’ benefits: “No credit check! Reports to major bureau! No introductory APR!” These claims, though, sometimes mask interest rate hikes, unexpected fees and even outright scams. Everyone, and especially those with bad credit, should be on their guard when choosing a credit card.

To cut to the chase, if you have pretty bad credit, try a local credit union, as they often have cards specifically designed for people seeking to rebuild credit. Also, check out our top picks:

The Orchard Bank credit card

IThe Orchard Bank credit cards come in two versions, secured and unsecured, both of which offer something unique. The unsecured is pretty much the easiest one of its class to qualify for, and we’ve seen FICO scores as low as 600 qualify. The secured has really good terms, with a low fee and a low interest rate. Plus, Orchard will lend you a secured card as long as you can post the minimum $200 deposit, no matter your credit score or your bankruptcy status. Most other lenders won’t lend to someone just out of bankruptcy. The secured’s got a $35 annual fee, waived the first year, and a low 7.9% APR. The unsecured has a worse APR and an ongoing $59 annual fee ($68 the first year) but you don’t have to post collateral upfront.

The Capital One Secured

Capital One Secured MasterCard Credit Card
Apply Now

on Capital One's
secure website

The Capital One Secured has one of the lowest annual fees, at a mere $29. The minimum security deposit is also really reasonable: $49, $99 or $200 gets you a $200 credit limit, which is better than most secured credit cards. This means that you need to put up less money upfront, so you don’t need to shell out $200 when you open the account. Plus, CapOne’s willing to lend to you straight out of bankruptcy, and pretty much gives its secured card to everyone who can pay the deposit. It’s one of the best lenders for bad credit.

PerkStreet Financial

A word of warning: the PerkStreet debit card will not rebuild your credit. It’s a debit card, so while you automatically qualify, you won’t be affecting your credit score either way. However, as debit cards go, PerkStreet kicks butt. It gives 1% rewards on non-PIN purchases made anywhere, plus 2% at select merchants. And no matter how much money is in the account, you never pay any monthly maintenance or debit usage fees.

What to expect, and what you shouldn’t stand for

If you have bad credit, you probably know that you won’t be getting killer rewards deals. In fact, you’ll be seeing interest rates that are, on average, about twice the rate of low APR credit cards. You’re also more likely to pay annual fees. These are standard for bad credit cards.

Carefully weigh the tradeoff between a card that has an annual fee with a lower APR and a card with no fee but a higher interest rate. Most consumers prefer no fee cards above all else, even though they may end up paying more in interest over time. Make a realistic decision based on your likelihood of carrying a balance.

Your credit card should not have an interest rate above 30%. The Credit CARD Act of 2009 stipulates that the total fees you pay in the first year cannot exceed 25% of your credit limit, so if you have a $300 credit line, make sure you aren’t being charged more than $75 in fees. Also make sure that you won’t be hit with new fees once the law’s protections expire, and keep an eye out for sneaky processing fees that will be levied before you receive the card.

Some of the best cards offer lower interest rates than usual, or waive penalty interest rates. Such cards are often issued by federal credit unions, which are not-for-profit institutions that cannot legally charge more than 18% interest.

Cards to avoid

Some cards make fraudulent claims, and a few should be avoided at all costs. These cards in particular promote themselves as easily accessible, requiring no credit check, but can actually be detrimental to your finances.

Net First Platinum & Horizon Gold: These two cards, issued by Horizon Card Services, are among the worst we’ve seen. They aren’t actually lines of credit, and only offer credit toward the Horizon Outlet store. Customers say that it’s extremely difficult to get rid of the cards once they realize what they’ve signed up for. Despite the bold lines on the NetFirstPlatinum site, the cards are not credit cards, the $500 credit limit is meaningless, and according to the disclosures buried deep on the website, they will not help to rebuild your credit score.

First Premier cards: The Aventium and Centennial from First Premier have just about the worst terms of any actual credit cards. They come with a $300 credit limit and $75 in first-year fees that count against that limit, effectively reducing it to $225. After the CARD Act’s regulations end, second-year fees jump sharply, beginning with a monthly fee and ending with a 25% cut of any credit limit increase.

Prepaid debit cards: Prepaid debit cards are probably the most prolific of the cards listed here. Offered by nearly everyone, from the Walmart MoneyCard to Russell Simmons’ Rush Card, prepaid cards sell themselves as responsible alternatives to lines of credit. They help you to stick to a budget, or so they claim, and some say they’ll report your good behavior to a “major credit bureau.” This last assertion sparked an investigation from Florida’s attorney general, since, as a debit card, a prepaid card won’t have any affect on your credit score.

Regular debit cards offer many of the same benefits prepaid, including fraud and overdraft protection, and help with sticking to a financial plan without the myriad fees you often see with prepaid cards. While a prepaid card may charge for ATM withdrawals, reloading, and balance inquiries on top of a monthly fee, most checking accounts have no fees or low fees that can be avoided by making minimum balance requirements.

In fact, you can even find rewards checking accounts that will give 1-2% back on whatever you spend. Other high-yield checking accounts, like the ones at Lake Michigan and Consumers Credit Unions, will give up to 4% of your average daily balance each year. No checking account will require a credit score.

How to rebuild your credit without losing money

Fortunately, there are a number of honest credit cards for bad credit. Credit unions tend to be friendlier to low FICO scores and limited credit histories. Spectrum Federal, for example, offers decent terms on its Visa Creditbuilder. You may be stuck with pre-approved credit cards if you’re fresh out of bankruptcy or have an extremely low FICO score, but even those can come with reasonable terms.

Secured credit cards: If you have really bad credit, your only option is likely to be a secured credit card. Unlike prepaid cards, these actually do extend a line of credit and help to rehabilitate your credit score. However, unlike regular credit cards, they require you to post collateral upfront, usually equal to your credit limit. This deposit won’t pay down your balance, and will be returned once you close the account. So, for example, let’s say you apply for the Capital One Secured credit card. Once you’re approved, you give them $49. Your credit limit is then $49. You use the CapOne Secured to build up your credit score, and eventually, you move on to another card. When you close your account, you get that $49 back untouched.

Orchard Bank: Orchard Bank is the issuer most sympathetic to bad credit, and will always conduct its credit checks in such a way that they won’t hurt your credit score. They approve anyone who can pay the deposit for the Orchard Bank Secured MasterCard. You can qualify even if you’re fresh out of bankruptcy, making the Orchard Bank MasterCard among the best bankruptcy credit cards. Its annual fee of $35 is waived the first year, and its APR is an unusually low 7.9%. Their standards and fees are slightly higher for the Orchard Bank credit card, requiring a salary of at least $12,000 and charging $59 a year. However, it’s the easiest unsecured card to qualify for.

Citibank and Capital One Secured: Both Citi and Capital One offer secured credit cards with annual fees of $29. The interest rates are higher, 18.24% and 22.9%, respectively, but they offer the option to “trade up” to unsecured cards if you use them responsibly. We think Capital One is the better choice, because they’re really good about lending to you after bankruptcy. Capital One will lend you a secured credit card immediately after bankruptcy, while Citibank considers applicants on a case-by-case basis.

Don't get burned by prepaid debit fees!
Use our prepaid card finder to save money and find better deals.
Don't get burned by prepaid debit fees!
Use our prepaid card finder to save money and find better deals.
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  • CatherineGotBandz

    email me at fireandice131@gmail.com if you wish to be financially free

  • Sunnie1

    I had a Bankruptcy in 2012 and I got a secured credit card and just found out today from them it will be five years before I could qualify for an unsecured card (after originally being told after one year). My credit score is now 682 and I would like to get an unsecured card. Any suggestions?

    Thanks,

    P.S. Capital One was in the bankruptcy so they won’t give me any card.

    • Javier Escobar

      The Bankruptcy is whats holding you back. Your credit score is actually a good one but that Bankruptcy is gonna haunt you for years as they’ve told you.

    • Janet Aldrich

      Was it a Chapter 7 or a Chapter 13? If it was a 13, did you complete it? From experience, I can tell you that you normally get a lot of credit offers, since you can’t go bankrupt again for 8 years (Chapter 7). Five years seems a bit long. I’d take the advice of this article and check out local banks and credit unions.

      • Sunnie1

        Thanks Janet. It was a Chapter 7 and I’m going to apply for another card toward the end of the year, which will be six months from the denial of the secured card I have now.

  • jess

    My name is jessica i am 19 years old. i have a credit score of like 500 and two accounts in collections and im in need of getting them out and i cant get approved for anything. does anyone have any suggestions

    • Javier Escobar

      Get a secured credit card. You’ll have to pay a security deposit on the card but you’ll probably get approved. If you pay a $200 security deposits then your credit line will be $200. Also don’t apply for so many different cards, hard inquiries hurt your credit score too. Also if you get a card, use it wisely. Pay bills with it , and used the money that you would’ve used to pay the bills, to get money orders and send them off as payments for that card. If you do this you’ll start receiving other credit card offers very soon.

  • Shelby Hilliard

    My credit is 570 and I have never had a credit card before. What card would you suggest applying for to start building some credit?

    • JustJenna

      CreditOne Bank

      • Matt

        I just had the worst experience with CreditOne.
        I got approved for $300 limit..
        Ive waited over a month for the card and everytime i called they keep pushing the date back and they had the worst customer service.
        I ended up just cancelling it and the lady hung the phone up on me after I cancelled it

    • Sky

      Capitol One is the best!!! To build or rebuild credit…. Credit One, First Premier, and credit cards of those types are looked down upon when companies are looking at “credit worthyness”

  • teresa potter

    My credit score is bad and I would like to inquire about a loan to combine all bills and pay a loan please email. Thsnk you. Sunshine461961@gmail.com

  • WritingMom888

    My credit score is bad 530 and we are currently homeless, doubled up with other family members out of state. Now that the summer is over we have to come back to CA. Luckily my husband was able to find a job teaching but we do not have any funding for security deposit for a rental ($2500). Also, i am seeking business start up funding for a pet related business that will be huge in CA, and for a business to stop skin cancer. I am looking for $3300 for the pet related business and $5000 for the skin cancer business. I will provide full details for business investors after signing disclosure statements.

  • Nakita

    I had an account with Capital One. I lost my job for 7 months. I went into debt over it. My account with Capital One went into collections. I paid the debt off. Would I be able to reapply to Capital One? If so, What am I to expect if I was to reapply?

    • Shay Nayoung

      Most likely not, because you are already in debt with another credit card company. I would suggest finding another job! And calling a local credit union and see if they follow up with bad credit. You should definitely call around and do your own research, good luck mate!

  • missingtonysoprano

    I ran into trouble after losing a job and finding out nobody wants to hire anyone over 59 yrs of age. I went past due on my Capital One card and although they have suspended the card it has not yet been “charged off” as I’m making the absolute minimum payments every month (it’s all I can afford). I just applied for their Capital One Secured Card and was denied. I need a credit card for various reasons and I don’t know what to do. My credit score is 580. Thanks if anyone has suggestions. (PS I’m getting by on social security. Can’t even find a part time job in this economy!)

  • Glenn

    I have a cap one secured card and after 6 months I called up to ask for a credit increase and was denied. they only increase credit if you put more money in the account. They are misleading.

  • http://www.nerdwallet.com/ NerdWallet

    Thanks, Aileen! Best of luck.