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If you have a low credit score, you might be surprised to learn that getting a new credit card can actually help. If you’re able to get approved for a new card with bad credit, you’ll have the opportunity to build better credit habits and reputation through responsible use. Not only that, but if you’re already in debt, adding a new card can improve your credit utilization and credit score.
Unfortunately, the credit card options for people with bad credit are often not very good. For example, such cards usually don’t come with welcome bonuses, and there are often fees like annual fees and foreign transaction fees. Credit cards with bad credit can also have high interest rates, which can make balancing a costly endeavor.
But having said that, it’s important to understand that some credit cards for bad credit are much better than others. So let’s take a look at the types of credit cards you might be eligible for when your credit is bad in January 2023, and how you can use them to your advantage.
Click here to see an up-to-date list of the best credit cards for people with bad credit scores.
If you have bad credit, you’re probably aware of this already. After all, a low credit score often means you’ve been turned down for credit cards or other loans in the past because lenders deemed you too much of a financial risk. You probably also know why you have bad credit to begin with, whether it’s because you defaulted on a loan or credit card, your account was charged, or you have a bankruptcy record.
But even if that’s the case, it doesn’t hurt to check your credit score so you know exactly where you stand. Fortunately, there are many ways to check your credit score for free.
You can start by signing up for a credit monitoring service that offers free credit scores, or by signing up for a program that offers free credit tracking tools. For example, Experian Boost lets consumers check their FICO credit score for free, and even helps you improve your score quickly.
If you deal with credit scoring, you’ll probably want to focus most on your FICO credit score, as it’s the most commonly used scoring model. FICO credit scores range from 300 to 850 and are divided into the following grades:
- Excellent: 800 and above
- Very good: 740 to 799
- Good: 670 to 739
- General: 580 to 669
- Poor: 579 and below
While truly “poor” credit is a FICO score of 580 or lower, “average” credit between 580 and 669 is still below average compared to other US consumers. If your credit score falls into any of these categories, you should take steps to improve it as soon as possible.
See if you qualify for one of these credit cards for people with good credit.
If you have bad credit, you can apply for two different types of credit cards—secured and unsecured.
If you have bad credit, it’s usually easiest to get a secured credit card. However, secured credit cards require a cash deposit to get started. This means you may have to pay $200, $500 or more as collateral, and you will usually get a low credit limit equal to or close to the deposit.
The great thing about secured credit cards is that they are usually reported to the major credit bureaus. This means all your on-time payments are added to your credit report, which helps improve your credit over time. Even though you have to deposit cash first to open a secured card, if you later close your account or upgrade in good standing with a $0 balance, your deposit will be refunded.
Save money with these best credit card deals for people with bad credit scores.
In addition to secured credit cards, you may also qualify for an unsecured credit card with bad credit. These cards tend to have fees, low credit limits, and few benefits, but they can also help you build credit.
Store credit cards are also an unsecured credit card that are easier to get approved for people with bad credit because they are usually only available at the store or chain that issued the card.
Aside from being easier to get approved, the biggest advantage of store credit cards is that if you find yourself frequently shopping at a particular retailer, you may save some money, both on your initial purchase and on future purchases. Future shopping trips. Typically, using a store credit card can save you 5% on purchases, and store credit cards have other benefits you might not have thought of.
Before you get a new credit card in 2023, you should make sure you have a clear idea of what you want to achieve. While getting a credit card gives you the opportunity to improve your credit, you could make it worse if you’re not prepared to take responsibility. So before you apply, ask yourself these questions:
- Am I going to bring a balance? If you want a credit card so you can choose the balance, you should know that credit cards with bad credit come with high interest rates. Not only that, but secured credit cards require you to provide cash as collateral, so they’re not a good option if you need a loan.
- Am I interested in rewards? Some credit cards for people with bad credit offer the opportunity to earn rewards on spending. While rewards can be lucrative, keep in mind that they often entice people to spend more than they planned.
- Do I have to pay an annual fee? Not all credit cards for people with bad credit charge an annual fee, but some do. If you decide to pay an annual fee, you should make sure that any benefits you get are worth it.
- Am I ready to take my credit seriously? A new credit card gives you the opportunity to improve your credit, but it doesn’t happen automatically. In most cases, getting a new credit card will only help your situation if you keep your balance low and always pay your bills on time.
The best credit cards for bad credit may not seem very attractive, but the goal is to use them to improve your credit score so you can qualify for better deals later. But there are a few “gotchas” to watch out for and be aware of, including:
- festival: While you should avoid annual fees as much as possible, you should also be aware that some credit cards, especially those for people with poor credit, will attempt to charge an account opening or processing fee. Avoid these offers as much as possible.
- high annual interest rate: Beware of high interest rates, which can make carrying debt extremely expensive. In fact, if you plan to use a credit card to boost your credit, you should try to avoid carrying a balance on the new card at all.
- credit error: Finally, be on the lookout for mistakes that damage your credit first. The worst thing you can do is delay paying your credit card bill, as it can have a significant negative impact on your credit score, so avoid it at all costs.
Compare credit card offers available to people with good credit.
If your goal in 2023 is to get a new credit card to help rebuild your credit, here’s what you need to know first and understand how your credit score is determined. Let’s take a closer look at the five factors that make up your FICO credit score:
- Payment History: 35%
- Arrears: 30%
- Credit History Length: 15%
- New credit: 10%
- Credit Portfolio: 10%
If you look at these factors, it’s easy to see what to do next. Most importantly, you should strive to pay your credit card bills, as well as all other bills, on time each month. In addition, you should keep your debt to a minimum, as the amount owed related to your line of credit accounts for 30% of your FICO score, also known as your “credit utilization ratio.”
Since any credit card with bad credit is likely to have a low credit limit initially, you need to take extra care not to exhaust your credit limit and pay off as much of your balance as possible each month to keep your credit utilization ratio low.
The length of your credit history can also increase if you keep old credit accounts open and in good standing, and you can maintain your high score in the “new credit” category by avoiding opening too many new accounts.
Your credit portfolio is the last category to keep in mind, but when you have average or poor credit score, you probably don’t have much different types of credit — such as mortgages or installment loans like car loans. Once you improve your credit score, you can worry more about spreading your credit with installment loans, revolving accounts, and other types of credit.
Finally, if you’re planning to get a new credit card to improve your bad credit, you need to make sure you don’t make the same mistakes that caused you problems. So if you decide to apply for a new credit card, use it wisely. Don’t overspend, don’t pay bills late, and avoid credit cards with high fees so you can regain good credit.
Learn more and apply today for the best credit cards with bad credit scores.
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