ADVERTISER DISCLOSURE

NerdWallet’s Best Bad Credit Cards, Spring 2014

by

This post may contain references to products from our partners. We may receive compensation when you click on links to those products. For an explanation of how we make money, please visit this page.

If you have bad credit and are in the market for a credit card, fasten your seat belts: you are going to be bombarded with some of the most ridiculous, unforgiving, and borderline evil card offers in the biz. A good rule of thumb – if it sounds too good to be true, it probably is. As the self proclaimed Batman-esque figures of the credit card world, we’ve taken it upon ourselves to equip honest credit seeking citizens with the resources needed to avoid filthy credit card scams and misleading offers. Here is our list of the best credit cards for bad credit, and a few other helpful pieces of information to help you in your search. Arm yourselves with knowledge!

Checking your credit score

Before anything, it would be a good idea to get a clear idea of your credit score. You can check out sites like GoFreeCredit.com, which charges a monthy fee of $16.95 that avoided if you cancel your membership within 30 days.

As you conduct your search, watch out for outrageous, over the top ads boasting something ridiculous like no introductory APR. This is one of the times you’ll want to double check the fine print, and use your best judgment before clicking on anything that could be a scam. You could find yourself drowning in high interest rates, hidden fees, and fraudulent lending practices.

You probably won’t find a card with any lower than 15% APR, and you probably won’t qualify for a rewards credit card. If you dedicate some time to building your credit and establishing responsible spending habits, you could soon graduate to a card with better interest rates and even some rewards. If you have bad credit, look into your local credit union. These are usually not-for-profit organizations that are more likely to accept your application. Plus, federal credit unions aren’t allowed to charge interest rates higher than 18% even if you miss a payment (but don’t make it a habit). But since you’re already here, take a look at our favorite cards for bad credit.

Best bad-credit card: Digital Federal Credit Union Secured

Digital Federal Credit Union Visa Platinum Secured Credit Card Credit Card
Apply Now

on Digital Federal Credit Union's
secure website

The Digital FCU Secured Visa is one of very few no annual fee secured cards on the market, and it has a low interest rate to boot: currently, the APR is just 11.5%. The card has no balance transfer or cash advance fee, and it also doesn’t charge you a higher interest rate for cash advances. Anyone can join DFCU with a $10 donation to Reach Out for Schools, a nonprofit organization.

Lowest security deposit: Capital One® Secured MasterCard®

Capital One Secured MasterCard Credit Card
Apply Now

on Capital One's
secure website

If you have little credit, no credit at all, or simply bad credit, a secured card might be the only line of credit you’ll qualify for. The Capital One Secured MasterCard is one of our favorites. It’s especially hospitable to bad-credit consumers, even those just out of bankruptcy. And it’s hard to beat an annual fee of $29 – secured cards almost always come with a fee, but they often hit $35 or more.

It also has one of the lowest minimum deposits out there. The deposit could be $49, $99, or $200, and then you can start with a $200 credit limit. If you’re short on cash, no worries: You can pay the deposit in installments, for as long as 80 days after signup. Once you’ve built up some solid credit, you can close the account, get your deposit back, and graduate to a card with lower APR and fees.

Best card for military: USAA Secured Card

USAA Secured Card Credit Card
Apply Now

on USAA's
secure website

The USAA offers a low-interest, lowish-fee secured card to those in the military. Membership is open to active military members and veterans, as well as the spouses, widows and widowers, and children of USAA members. The card has a higher fee than the Capital One offer ($35 compared to $29), but it has a much lower interest rate of 9.9%.

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

If your credit score leaves something to be desired, don’t expect worthwhile reward deals. Instead, you’ll likely find yourself confronted with inflated interest rates and monstrous fees.

Put some serious thought into whether it would be more beneficial to use a card with high fees and a low interest rate or low fees and a high interest rate. People generally prefer to go the low-fee route, which is totally understandable, but will then end up paying more in interest rates than they would have in fees with the other card. If you tend to carry a balance, carefully examine the true cost of each card by taking into account both recurring fees and ongoing APR.

General rule of thumb: If the APR is higher than 30%, run far, far away. And fast. The Credit CARD Act of 2009 states the total fees paid in the first year may not exceed 25% of your credit limit. For example, if you have a $300 credit limit, make certain you are not being charged more than $75 in fees. Additionally, read over all the details to make sure you won’t have to contend with new fees once the law’s protections expire, and watch out for hidden processing fees that are sometimes levied before receipt of the card.

Again, make a visit or two to your local credit unions. Federal credit unions are prohibited from charging interest rates higher than 18%, even if you miss a payment. In general, credit unions have lower APRs and fees and will oftentimes waive late fees and penalty APRs altogether.

Scams, gimmicks and cards to avoid

Beware the call of the sirens! If you have bad credit, some card companies will welcome with you open arms. But their so-called “deals” are scams that could leave you deeper in debt. If a card company claims that it doesn’t requires a credit check, it’s a lie.

Net First Platinum & Horizon Gold: These cards offer credit toward their outlet stores, which pose as legitimate credit lines. Their cards won’t get you very far.  If you sign up and receive a card, you’ll get a piece of plastic that pays exclusively for items on their websites, which to boot, are overpriced. Their “$500 unsecured credit limit” is baloney, too. The NetFirstPlatinum and Horizon will not build your credit, just levy heavy fees.

First Premier: A smidge less horrendous are First Premier’s Aventium and Centennial cards. First Premier does in fact offer credit cards, but the fees are exorbitant and hard-to-find. The Credit CARD Act of 2009 limits the fees that can be charged in the first year – and guess what, the First Premier hits exactly that limit. With their $75 first-year fee, your $300 credit limit suddenly becomes $225. After that first year, the CARD Act’s protections wear off, and the First Premier will take a 25% cut of any increase in your credit limit. 

Prepaid debit cards: Some prepaid credit cards market specifically to low-credit consumers looking for a break. To attract consumers, a lot of these cards will feature the faces of pop-culture icons. The Kardashian sisters, Robert Pattinson, and Kristen Stewart all lend a pretty face to a crappy card. These companies claim to report to major credit bureaus, but, as we’ve advised again and again, payment history on your debit account does not at all affect your credit score. These card companies will nickel and dime you, too. There are fees for ATM withdrawal and even balance inquiries.

If you’re looking for a real debit account, go to a credit union. They often have free checking with no minimum deposits. Some even give back 1-2% on your spending. And again, credit unions, as not-for-profit institutions, can be a great deal. Some will reward up to 4% of your average daily balance each year. Remember – checking accounts don’t impact your FICO score!

With poor credit, a secured credit card is likely your best option. Pay on time, be smart, earn some credibility, and in due time you’ll graduate to a card with real rewards and lower charges.

We want to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and safe by following our posting guidelines, and avoid disclosing personal or sensitive information such as bank account or phone numbers. Any comments posted under NerdWallet's official account are not reviewed or endorsed by representatives of financial institutions affiliated with the reviewed products, unless explicitly stated otherwise.
  • heavyw8t

    A lot of your responses include “your local credit union”. Don’t you have to have to be employed at some specific place to become a member of a credit union? I mean to belong to the UAW Credit Union, don’t you have to belong to UAW? Can you just walk into random credit unions and start applying for credit cards?

    • blackbeered

      In most cases, no allegiance required. That was yesteryear.

  • Melissa

    It seems to me every high school should have mandatory classes on managing your credit. One thing that bothers me are these sites where you can pull up your credit score for free. It claimed I had a 648 score, so I tried applying for a credit card and on my rejection letter it stated my score was 604. I applied to 2 different cards both telling the same thing. Which score is the right score? To me, the right score is the one these credit card companies are referring to. I switched to myfico.com and my scores are all over the place….556(604, no more), 654, 650. I’m just now starting to rebuild my credit and based on all the info, what’s really hurting me is I have no line of credit. Does your line of credit impact your score? If these are actually my scores, is a secured card still my only option? I’m a stay at home mom, so I have no income from a job. My husband makes a good income, but his credit is worst than mine. I want to apply for my own card, but wondered if that could’ve been another reason they denied me. Is there any way around that?
    Also, I heard its important to ask before applying for a secured card, to see if they report it on your credit as being “Secured”. I cant remember the exact reason, maybe just doesn’t look as good to lenders?

  • Melissa

    NerdWallet, can you please tell me what you think of a secured credit card from Navy Federal. They’re a credit union in my area, and I was going to take your advice and speak to someone in person. Is this card worth it?
    Gracias!

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

      Navy Federal is great! The only concern is that you or a family member must be affiliated with the Department of Defense.

  • Melissa

    Oh my gosh, I’m thinking of a million questions now! So sorry everyone. When I got denied for the two credit cards (Capitol One and Chase un-secured), why couldn’t they refer me to another card they provided that would better suit my needs during the application process. If I act quickly, I don’t see why my same application and credit report cant be used towards one of their other cards with the SAME COMPANY. And by quickly I mean within 14 days. Do they really have to ding my credit again? This is when I think its unfair, they just didn’t want to work with me at all. I don’t care if my limit is $100, something is something.

  • Sasha

    I just discovered that I am on a joint credit card with my mom and she has almost maxed it out or paid late. This is impacting my credit score? Is thre a way for me to have my name removed from the account? If so, will this negatively affect my credit score? I don’t feel that I should be held responsible for a card I wasn’t aware existed.

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

      Hey Sasha, I’m sorry to hear you’re having such trouble. If your mom’s making late payments, you’re better off getting your name off the account because it does indeed impact your credit score. Once you’re off the account, you can start rebuilding your credit with a secured credit card or secured share loan.

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

    Hi Chantel, you can check out our picks for the best easy-to-obtain credit cards and find a no-fee card that suits your needs!