If you have a low credit score, you may think you have to take what you can get when it comes to credit cards. In reality, however, there are a number of credit cards for bad credit. No matter what your credit score, it’s a bad idea to apply for the first credit card offer that comes along.
Is the bad credit credit card you’re considering the right one for you? Ask yourself these four questions before you apply:
Is it secured or unsecured?
Most credit cards you encounter are unsecured. Secured cards are similar — in that you can use them to make purchases and receive a monthly bill — but opening the account requires a few extra steps. You’ll make a deposit with your lender, and then you can use the card to borrow as normal — usually up to the amount of your deposit.
If you can get an unsecured card, you should. But if you qualify only for secured cards, ensure that the issuer will transition you to an unsecured card after you’ve built a solid payment history.
What’s the interest rate?
If you have poor credit, the cards available to you will have interest rates on the higher side, but that doesn’t mean you have no choice at all. Compare the rates for available cards to get the best deal. And remember that your interest rate matters only if you run a balance on the card. If you already have poor credit, this is the last thing you should be doing.
Are there rewards?
Most rewards credit cards are out of reach for people with bad credit, but this isn’t always the case. If you want rewards, you may have a few card options. Just keep in mind that many bad credit credit cards with rewards also have an annual fee. Weigh the amount you’re likely to earn against the price you’ll pay for the card before springing for a rewards card.
Are there benefits for using your credit responsibly?
Beyond cash back rewards, some credit cards for poor credit offer perks that can help with credit repair. Look for cards that recognize on-time payments with credit limit increases. Having a higher credit limit can lower your credit utilization ratio, which can then give you a credit score bump — as long as you don’t take advantage of the opportunity to spend more.
The bottom line
Bad credit credit cards may not have all the bells and whistles that credit card commercials have taught you to expect, but they’re still credit — and credit is important. No matter what card you qualify for, use it as an opportunity to build up your score by making full, on-time payments. And when you do qualify for the best credit cards, don’t necessarily close your old one. Having a long, responsible history with a credit account works wonders for your credit score.
Couple using credit card image via iStock.