If you have bad credit or none whatsoever, you may find it next to impossible to get approved for a regular credit card. This is where credit cards for bad credit (also called secured credit cards) can help you out, as they are much easier to qualify for and can provide a stepping stone on the path to building credit.
Secured credit cards are a bit harder to find than regular cards; just a few banks offer them to consumers.
- Check out Nerdwallet’s roundup of the Best Credit Card for Bad Credit for some specific options.
How do secured cards work?
With a secured credit card, a cash deposit is required and your credit line is limited to the amount of the deposit.
For example, if you make a $1,000 cash deposit, that’s how much you’ll be able to spend up to on the card. The deposit serves as collateral, which means the money can be forfeited if you don’t make the regular minimum monthly payments on time.
Secured cards are specifically geared to those trying to build or repair their credit history. Approval rates are higher than for regular credit cards, but so are the interest costs, since the credit card company is taking on greater risk by issuing the card to a higher-risk borrower with poor or no credit history.
Unlike debit cards, most of these cards report your payment history to the credit bureaus. So by managing your account responsibly—making on-time payments, paying off your balance in full and not getting too close to your credit limit—your credit score should rise, which can lead to a higher credit limit on the secured card or the opportunity to move onto a traditional unsecured credit card.
What to look for in credit cards for bad credit
Not all bad-credit credit cards are created equal. When making a decision, you’ll need to consider numerous factors: annual fees, interest rates, the initial deposit required and whether the card offers any rewards. You can check NerdWallet’s list of secured credit cards to compare all of your options.
By choosing the best credit card for bad credit, you can build up your credit score while also enjoying some of the perks offered by traditional credit cards.
Image of stepping stones via Shutterstock.