The 6 best credit cards for bad credit in January 2021
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Having a low credit score makes it harder to get approved for a new credit card and other types of loans, and it means that when you do get approved for, say, a mortgage, you'll generally get less-favorable terms like the highest variable interest rates.
A bad credit score is defined as anything below 580, according to the FICO scoring model, and anything below 601 according to VantageScore. If you currently find yourself in this credit score range, you probably won't get approved for popular rewards cards like the Chase Sapphire Preferred® Card, but you do have some credit card options. Secured credit cards are particularly easy to get approved for, because you put up a cash deposit as collateral to get started, and there are also non-secured cards tailored to those looking to repair or build their credit.
Using a card responsibly will help boost your credit over time, since keeping your credit utilization low and making on-time payments are the two biggest factors that determine your credit score. Once you have your finances on track and your credit score keeps climbing, it's only a matter of time before you can get a rewards credit card offering bonus points and other enticing perks.
The best credit cards for bad credit
- Best secured card with rewards: Discover it® Secured
- Best secured card with purchase and travel protection: Capital One® Secured Mastercard®
- If you can qualify for a non-secured credit card: Capital One® Platinum Credit Card
- Best for building credit: Petal® 2 "Cash Back, No Fees" Visa® Credit Card
- For students building credit: Discover it® Student Cash Back
- A secured credit card for businesses: Wells Fargo Business Secured Credit Card
Discover it® Secured
- Earns 1.5% cash back on every dollar you spend, or choose to earn rewards points instead
- If you choose to earn points instead of cash back, you can earn 1,000 bonus rewards points when you spend $1,000 or more in a billing period
- You can get up to a $25,000 credit line
- Unlike many other secured cards, it has an annual fee (of $25)
A secured credit card for businesses: Wells Fargo Business Secured Credit Card
Business owners who want to improve bad credit may need to get started with a secured credit card for business, and the Wells Fargo Business Secured Credit Card is a good option. This option only requires a $25 annual fee per card, yet you can qualify for a line of credit between $500 and $25,000.
You'll also earn 1.5% cash back for each dollar you spend, or you can decide to earn rewards "points" instead and redeem them for gift cards, merchandise, and flights. You'll earn 1 point on every dollar spent and receive 1,000 bonus points when your company spends $1,000 or more during a monthly billing period. Cash back is received automatically as a deposit into an eligible checking or savings account each quarter.
This card won't charge any foreign transaction fees, and you can log in for business spending reports from Wells Fargo.
Frequently asked questions
If your credit is in poor shape, picking up a credit card can help if you use it to your advantage. These questions and answers can help you get approved for a credit card for bad credit, then use it to boost your credit score over time.
How do I know if I have bad credit?
According to myFICO.com, poor credit is typically considered any FICO score below 580. Meanwhile, "fair credit" is considered any FICO score between 580 and 669.
The best way to find out if you have bad credit is to check your credit score for free online. Fortunately, a variety of platforms let you get a free look at your credit score, including Credit Sesame and Credit Karma.
How can a credit card help me build credit?
Credit cards help you build credit by reporting your credit movements to the three credit bureaus. To build credit with a credit card, all you have to do is use your card for purchases you can afford to pay off. From there, pay your credit card bill early or on time each month. Over time, your positive credit usage will help boost your score.
What is a secured credit card?
A secured credit card is a type of credit card that requires a cash deposit as collateral. The cash deposit you put down is typically equal or close to the line of credit you qualify for, meaning you'll get a $500 line of credit if you put down $500 in cash to get started. While putting down collateral may not seem ideal, secured credit cards are considerably easier to get approved for when you have bad credit or a limited credit history.
How do I avoid credit card interest?
To avoid paying interest on purchases made with a credit card, you need to pay your credit card statement balance in full each month. You'll only be charged interest on balances you carry from one month to the next, so you should strive to avoid this.
Which credit card fees should I watch out for?
Try to pick a credit card that doesn't charge an annual fee. Other credit card fees to watch out for include application fees, late fees, balance transfer fees, cash advance fees, and over-the-limit fees.
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Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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