Can I Get a Credit Card with a Low Credit Score?
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That’s because banks and credit card lenders view consumers with low credit scores as higher risk. These consumers are seen as more likely to miss payments or not repay their debts on time.
But while you may find fewer credit card options if you have a poor credit history, you aren’t completely out of luck.
Card lenders are now embracing more high-risk consumers, known in the industry as subprime consumers, after tightening underwriting standards from 2009 to 2010.
As you comparison shop to find the credit card that best fits your needs, consider these three types of cards that are often offered to consumers with low credit scores:
1. Secured credit card.
Even if you have a low credit score, you may be able to qualify for a secured credit card. This type of card can be a valuable tool to help you reestablish your credit and improve your creditworthiness.
To open a secured credit card, you’ll be required to put down a security deposit as collateral to help offset the risk for the lender in case you default on the card.
In general, the security deposit is equal to the credit limit on the card. If you make an initial cash deposit of $300, for example, your credit limit will also be $300.
Keep in mind that secured credit cards often come with higher fees than their unsecured counterparts (traditional cards that are offered by a bank or other financial institution and that don’t require a security deposit). In addition, while many secured cards boast attractive low interest rates, those rates could significantly increase after about a year.
If you do opt for a secured credit card, make sure your credit activity is reported to the three national credit reporting agencies in order to help to build your credit history. If you make on-time payments for six months to one year, you might be able to qualify for an unsecured credit card.
2. Retail credit card.
With a low credit score, you may have an easier time qualifying for a retail credit card than a general-purpose credit card. In fact, in 2013, American retailers opened the largest number of credit cards for consumers since 2009, according to Equifax data.
While retail credit cards can be used to help improve your credit score and often come with promotions, discounts, and other incentives, they are also known to have high interest rates. If you regularly carry a balance and only make the minimum monthly payment on your retail card, you could dish out a significant amount of money in interest.
Retail cards are also notorious for having low credit limits, which could harm your credit utilization (how much of your available credit you are using). Experts generally agree that if you carry a balance of less than 30 percent of your credit limit, lenders will view you more favorably.
3. Unsecured credit card.
Depending on how low your credit score is, you could have difficulty qualifying for an unsecured credit card.
Unlike a secured credit card, an unsecured card doesn’t require a security deposit as collateral. Instead, factors such as your credit score, income, and credit card debt are considered to determine if you are approved—and at what interest rate and credit limit.
If you have a low score and are approved for an unsecured credit card, you’ll likely be considered a high credit risk. As a result, you could be hit with a high interest rate and hefty fees on top of a low credit limit.
Fortunately, credit card legislation in 2010, known as the CARD Act, put a cap on the fees credit card companies could charge consumers. According to the law, credit card fees (excluding penalty fees) cannot total more than 25 percent of the initial credit limit in the first year the account is open.
Using your card wisely
Once you get a hold of your new credit card, make sure to practice positive payment behavior that will reflect favorably on your credit history and credit score. Always pay your bills on time every month to establish a positive payment history, and try to keep your balances low in order to improve your credit utilization.
Regularly pull a copy of your credit report so you can monitor your credit activity and ensure all of your information is accurate and up to date. You are entitled to one free credit report from each of the three nationwide credit reporting agencies annually through annualcreditreport.com.
Also consider ordering your credit score for a nominal fee to determine how your credit card use is impacting it.
Once you’ve reestablished your credit history and improved your credit score, you may be able to qualify for more favorable terms on your credit cards.
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