4 Reasons to Consider a Bad Credit Credit Card

People get sick. Jobs come and go. The roof leaks. Life happens, and sometimes that means you end up with a low credit score.

Credit cards for people with bad credit can make a big difference when you’re getting your finances back in shape. Here are some reasons you might want to consider applying for a bad credit credit card.

1. Applying for lots of credit cards hurts your score.

Every time you apply for a credit card, your score slips about five points. If your score is high, five points is just a blip. But if your score is low — anything below 630 is considered bad credit — you can’t afford to do anything that causes it to go down even further. So if you’ve been applying for the best credit cards out there without success, stop now. Get realistic and apply for a card that’s geared toward people in your situation. The card issuers will be more sympathetic to your plight, and you won’t keep bringing your score down even further by applying for cards without getting approved. And don’t worry — when your score improves, you’ll be able to apply for any card you want.

2. You’re responsible, but you need a chance to prove it.

The best credit cards for people with poor credit are often secured cards. With secured cards, you pay the card issuer a refundable deposit so they feel more confident you’ll pay back what you borrow. Getting a secured credit card gives you a chance to build up a positive credit history. To take advantage of the opportunity, make sure you pay on time, every time, and keep your overall balances as low as possible, and definitely below 30% of your available credit at all times during the month.

3. They’re not necessarily a bad deal.

It’s true — many financial products for people with few options have high, exploitative fees, like payday loans and some prepaid debit cards. But many of have annual fees comparable to other credit cards, and the Credit CARD Act of 2009 prevents credit card companies from jacking up the fees higher than 25% of your credit limit in the first year you have the card.

4. Bad credit credit cards build your score — debit cards don’t.

It’s pretty hard to get through life without plastic these days, so many people with poor credit (or even no credit history at all) get a prepaid debit card. While these are useful, they don’t report to the credit bureaus, so they don’t build your score and you’re never able to move up to a better card. Choose an option that will bring your score up if at all possible.

A good credit score makes it easier to find a place to live, get a job and get insurance — all things that will improve your sense of security and your quality of life. Make this the last credit card for poor credit you ever apply for. Use it as a tool for rebuilding your credit, and put good financial habits in place to ensure you’re never in this position again.

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When 0% Interest Credit Cards Are the Best Available Option

Deciding on a credit card to apply for can be confusing. Even for those with little understanding of how credit cards work, however, the appeal of a zero interest credit card is obvious. But is it the best card for you?

Like many questions in life, the answer is that it depends. Everyone has a unique credit history and financial situation, and with hundreds of different credit cards available, no one card is best for everybody. Here are some cases in which a 0 interest credit card may be best for you.

You already have a lot of credit card debt

If you have a lot of credit card debt, paying it down while interest mounts can feel like treading water. Getting a card with no interest can be a great option to consolidate existing credit card debt and pay it down. If you’re thinking of this option, check into cards that also offer 0% balance transfers at the same time. Saving money on interest that you’ll just pay in the form of balance transfer fees isn’t really saving any money at all.

This debt consolidation option is most attractive if you can pay down the existing debt before the introductory period is over. That’s the time frame for which you’ll be able to use the card without paying interest, and it varies by card offer. Make sure that if you decide on this option, you have a plan to pay down as much of your debt as you can during the 0 APR introductory period.

You have one big purchase to make

If you’re facing a large purchase you can’t quite afford in one payment, a 0 interest credit card offer may be just what you need. This option can give you the time you need to pay for something expensive without worrying about interest. Unlike the debt consolidation option, finding a credit card with a 0% balance transfer option may not be necessary.

Even though you may not have to worry about balance transfers in the case of a large purchase, you should pay attention to the length of the offer. If you’re going to buy your item interest free, it’s your responsibility to plan accordingly. Make sure you can pay off the balance on the card before the introductory period runs out, or else it might not be worth it.

What to know before you apply

In general, the best interest free credit card offers are available only to those with good or excellent credit. If that doesn’t sound like you, and you’re checking out 0 interest credit card offers, be sure to read the fine print, and make note of any extra fees. When deciding whether it’s worth it to get a no interest credit card, ensure those fees don’t cancel out what you’re saving on interest.

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Credit History vs. Credit Report: What’s the Difference?

You know the difference between your credit score and credit report—but the difference between a credit history and a credit report still might be a head-scratcher for you if you have no credit.

Simply put, your credit history is included on your credit report, and you can’t have one without the other. Here’s how it works.

Credit history

Your credit history is an exhaustive record of all your lines of credit, bill payments and credit usage. If you don’t have any credit cards or loans, chances are you have no credit history. But that’s easy to fix.

There are credit cards for people with no credit; they’re called secured cards, and they report to the three major credit bureaus—Equifax, Transunion and Experian. To establish credit for yourself, consider applying for one. Make your payments on time and use less than 30% of your credit limit. By starting small, you can build a strong credit history over time.

Credit report

Credit reports are the documents potential lenders look at to see if you’re a responsible borrower. They include a person’s credit history as well as other information, like the borrower’s Social Security number and address. You’re entitled to one free credit report per year from each credit bureau.

If you have no credit history or use a credit card that doesn’t report to the credit bureaus, you won’t have a credit report. This doesn’t mean you have bad credit; it just means that lenders don’t have enough information to determine whether or not you’d be a responsible borrower.

If you have a longer credit history, here’s a look at what could be included on your credit report:

Bankruptcies, foreclosures, collections and public records—More than 3 million foreclosure filings were made during the economic downturn of 2008, according to a study by RealtyTrac. But come 2015, those foreclosures, which currently stay on credit reports for seven years along with bankruptcies, public records (such as liens) and payments that went into collections, will come off borrowers’ credit reports.

Inquiries—Hard inquiries stay on your credit report for two years and ding your credit score about five points each. Every credit card application counts as a separate inquiry, so if you have no credit, remember to apply to new cards one at a time.

Late payments—Late payments might not sound like a big deal, but like bankruptcies, they’ll be on your credit report for seven years. Automate your credit card payments to ensure you pay your cards on time, every time.

Closed accounts—If you close an account, it doesn’t just disappear. Accounts paid on time will show up for 10 years from the date of closure, but accounts paid late will show up on your report for seven years after the last missed payment. Before closing an account, think about the impact it will have on your credit report.

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4 Reasons to Consider a Bad Credit Credit Card

People get sick. Jobs come and go. The roof leaks. Life happens, and sometimes that means you end up with a low credit score.

Credit cards for people with bad credit can make a big difference when you’re getting your finances back in shape. Here are some reasons you might want to consider applying for a bad credit credit card.

1. Applying for lots of credit cards hurts your score.

Every time you apply for a credit card, your score slips about five points. If your score is high, five points is just a blip. But if your score is low — anything below 630 is considered bad credit — you can’t afford to do anything that causes it to go down even further. So if you’ve been applying for the best credit cards out there without success, stop now. Get realistic and apply for a card that’s geared toward people in your situation. The card issuers will be more sympathetic to your plight, and you won’t keep bringing your score down even further by applying for cards without getting approved. And don’t worry — when your score improves, you’ll be able to apply for any card you want.

2. You’re responsible, but you need a chance to prove it.

The best credit cards for people with poor credit are often secured cards. With secured cards, you pay the card issuer a refundable deposit so they feel more confident you’ll pay back what you borrow. Getting a secured credit card gives you a chance to build up a positive credit history. To take advantage of the opportunity, make sure you pay on time, every time, and keep your overall balances as low as possible, and definitely below 30% of your available credit at all times during the month.

3. They’re not necessarily a bad deal.

It’s true — many financial products for people with few options have high, exploitative fees, like payday loans and some prepaid debit cards. But many of have annual fees comparable to other credit cards, and the Credit CARD Act of 2009 prevents credit card companies from jacking up the fees higher than 25% of your credit limit in the first year you have the card.

4. Bad credit credit cards build your score — debit cards don’t.

It’s pretty hard to get through life without plastic these days, so many people with poor credit (or even no credit history at all) get a prepaid debit card. While these are useful, they don’t report to the credit bureaus, so they don’t build your score and you’re never able to move up to a better card. Choose an option that will bring your score up if at all possible.

A good credit score makes it easier to find a place to live, get a job and get insurance — all things that will improve your sense of security and your quality of life. Make this the last credit card for poor credit you ever apply for. Use it as a tool for rebuilding your credit, and put good financial habits in place to ensure you’re never in this position again.

---

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Should I Get More Than One Bad Credit Credit Card?

Applying for a credit card is an important decision. Each new application reduces your credit score slightly, and too much available credit increases the risk that your spending will get out of control and you’ll rack up more debt.

In spite of all that, there are good reasons to apply for bad credit credit cards. In some cases, there are even good reasons to apply for more than one.

Let’s look at the factors that should guide your decision.

Why apply for a credit card for people with poor credit?

If your credit score is below 630, you may not be able to qualify for a regular credit card. A credit card for people with bad credit may be the best bet—and that will often mean a secured credit card. These cards require applicants to pay a refundable deposit, an extra guarantee that you’ll pay off your balance.

Using a secured credit card helps you demonstrate that you can be trusted to pay your bills on time. Regular, responsible use of the card will gradually raise your score so you’ll eventually be able to apply for other cards, even the best credit cards out there.

Why would I want to apply for more than one card?

Credit cards for people with bad credit often have low limits, which can be challenging especially if you’re trying to increase your credit score. That’s because part of your score is determined by the percentage of your available credit that you’re using. For example, let’s say you only have one credit card, and it has a credit limit of $300. If you have a $150 balance on the card, you’re using 50% of your available credit—and that will hurt your score. Credit utilization should be below 30% if at all possible, which means using only $100 on a card with a $300 limit.

It gets even trickier than that. Because you don’t know when the three credit bureaus — Equifax, Experian and TransUnion — will look at your credit history, you can’t risk having your credit utilization ratio be above 30% at any point during the month. So even if you pay your entire balance off each month, you need to make sure not to charge more that 30% at a time or risk bringing your score down.

So additional cards may benefit you because they’ll increase your available credit and make it easier to make larger purchases and pay them off right away without dinging your credit score.

What’s the catch?

Every time you apply for a new card, your score slips by five points. Applying for a lot of cards in a short period of time makes lenders nervous, so be careful. If you’ve recently applied for a credit card for bad credit, don’t apply for another one right away—and don’t apply for cards you don’t need. More credit is not necessarily a good thing, partly because frequent credit card applications hurt your score and partly because it makes it too easy to overspend.

The bottom line

Don’t apply for more credit cards than you need and focus on using your cards in a way that builds your score. Credit cards are valuable financial tools, but only if you’re careful.

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How to Get an Unsecured Credit Card With No Credit History

You may have no credit, but that doesn’t mean you’re completely out of the running for an unsecured credit card. While good credit makes finding a credit card much easier, there are credit cards for people with no credit history.

A bank takes a certain risk with each credit card it issues. Your credit score and credit history are used in determining whether or not you are a good risk. With no credit, the bank doesn’t have much information to base their decision upon, so your options are limited.

Credit cards for no credit history

Secured credit cards are often offered as the most logical solution for people with bad or no credit. These cards require you to put a deposit down as collateral against the line of credit. If you fail to pay your monthly bill, the bank can use the deposit.

But there are some unsecured credit cards for people with no credit or bad credit. These cards will likely have higher fees and interest rates than other unsecured cards (those offered to people with good credit), but they won’t require an upfront deposit like a secured credit card. Read here for additional information on unsecured cards that are easy to qualify for.

Building your credit

Because you have no credit, managing your new card responsibly will have a major impact on your credit worthiness in the future. In other words, the habits you develop with this card now will determine your credit history. So use it wisely. Here are a few important guidelines for building healthy credit:

1. Always pay your bill on time.


2. Strive to pay off your balance in full each month to avoid sinking further and further into debt.


3. Don’t max out your card or keep the balance high. Ideally, you’ll want to keep your balance below 30% of your limit. Once you cross that threshold, there’s a chance of negatively impacting your credit.


4. Check your credit report and credit score before getting your new card and periodically after you’ve established credit.


5. When it’s time to move on to a better credit card with lower rates and fees, think hard before canceling older cards. Part of your credit score is based on the length of your credit history. So an open account in favorable standing does more for your credit than closing it out.

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Should I Get More Than One Bad Credit Credit Card?

Applying for a credit card is an important decision. Each new application reduces your credit score slightly, and too much available credit increases the risk that your spending will get out of control and you’ll rack up more debt.

In spite of all that, there are good reasons to apply for bad credit credit cards. In some cases, there are even good reasons to apply for more than one.

Let’s look at the factors that should guide your decision.

Why apply for a credit card for people with poor credit?

If your credit score is below 630, you may not be able to qualify for a regular credit card. A credit card for people with bad credit may be the best bet—and that will often mean a secured credit card. These cards require applicants to pay a refundable deposit, an extra guarantee that you’ll pay off your balance.

Using a secured credit card helps you demonstrate that you can be trusted to pay your bills on time. Regular, responsible use of the card will gradually raise your score so you’ll eventually be able to apply for other cards, even the best credit cards out there.

Why would I want to apply for more than one card?

Credit cards for people with bad credit often have low limits, which can be challenging especially if you’re trying to increase your credit score. That’s because part of your score is determined by the percentage of your available credit that you’re using. For example, let’s say you only have one credit card, and it has a credit limit of $300. If you have a $150 balance on the card, you’re using 50% of your available credit—and that will hurt your score. Credit utilization should be below 30% if at all possible, which means using only $100 on a card with a $300 limit.

It gets even trickier than that. Because you don’t know when the three credit bureaus — Equifax, Experian and TransUnion — will look at your credit history, you can’t risk having your credit utilization ratio be above 30% at any point during the month. So even if you pay your entire balance off each month, you need to make sure not to charge more that 30% at a time or risk bringing your score down.

So additional cards may benefit you because they’ll increase your available credit and make it easier to make larger purchases and pay them off right away without dinging your credit score.

What’s the catch?

Every time you apply for a new card, your score slips by five points. Applying for a lot of cards in a short period of time makes lenders nervous, so be careful. If you’ve recently applied for a credit card for bad credit, don’t apply for another one right away—and don’t apply for cards you don’t need. More credit is not necessarily a good thing, partly because frequent credit card applications hurt your score and partly because it makes it too easy to overspend.

The bottom line

Don’t apply for more credit cards than you need and focus on using your cards in a way that builds your score. Credit cards are valuable financial tools, but only if you’re careful.

---

Image via iStock.

The post Should I Get More Than One Bad Credit Credit Card? appeared first on NerdWallet Credit Card Blog.

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