For people with bad credit or no credit, so-called instant-approval credit cards may seem like an alluring option, since they don’t require a credit check. But the negatives of such cards usually far outweigh the positives.
Guaranteed-approval cards almost always charge high fees, often hundreds of dollars a year. And some don’t even report customers’ payment activity to the national credit bureaus. That defeats the purpose of getting such a card, which is to build your credit.
What to get instead: A secured credit card
The best alternative to an instant-approval credit card is a secured credit card. These cards require a refundable cash deposit, which is usually equal to your credit limit. The deposit reduces the risk to the issuer; in the event you don't pay your bill, the card issuer will close the account and use the deposit to pay the outstanding charges. Deposit requirements vary by issuer, but here’s how it typically works:
You deposit an amount of money as collateral, say $200.
The issuer gives you a card with a spending limit of $200.
You use the card just like any other credit card, making purchases and paying them off.
If you follow good credit practices — including making payments on time and keeping your credit utilization low — the card helps you build good credit.
When you close the account or upgrade to a regular unsecured card from the same issuer, you get your deposit back.
Approval for secured credit cards is not guaranteed in all cases. Depending on the issuer, you might still be declined, if, for example, you don't have a source of income, you don't have a bank account, or you have an undischarged bankruptcy. But because the deposit lessens the risk, issuers make these cards available to people who couldn't qualify for other cards. And the cost of carrying them is less than with instant-approval cards, especially considering that you get your deposit back, and dodge the high fees on instant-approval cards.
Secured credit cards to consider
For rewards and upgrading: Discover it® Secured Credit Card
The Discover it® Secured Credit Card has been a NerdWallet favorite because it offers rewards — a rare feature on secured credit cards. The card gives you 2% cash back on up to $1,000 worth of combined spending per quarter at restaurants and gas stations, and 1% back on all other spending. The card has a bonus offer: INTRO OFFER: Unlimited Cashback Match – only from Discover. Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. Just a dollar-for-dollar match. It also offers a path to upgrade: After eight months, Discover begins reviewing your account to determine whether your account can be upgraded to an unsecured card. The annual fee is $0. The minimum deposit is $200; the maximum is $2,500.
For low deposit: Secured Mastercard® from Capital One
The no-annual-fee Secured Mastercard® from Capital One allows some applicants to qualify for a $200 credit limit with a deposit of $49, $99 or $200. You can increase your limit to a maximum of $1,000 by depositing more money before activating the card. These deposits can also be made in installments. You could gain access to a higher credit limit with no additional deposit if you pay on time for as little as six months. Approval standards are tighter for this card than for some others. You must have a bank account, and your monthly income must be at least $425 more than your rent or mortgage payment.
For no credit check or no bank account: OpenSky® Secured Visa® Credit Card
The OpenSky® Secured Visa® Credit Card card doesn't require a credit check, and you can pay your bill with a debit card, wire transfer, money order or check. That's helpful if you don’t have a bank account. The minimum deposit is $200, and the maximum is $3,000. Two potential downsides: The card's $35 annual fee, and OpenSky doesn't have any options for upgrading.