Getting approved for a credit card can be challenging if you have bad credit. Many traditional card issuers will deny applicants with low credit scores or negative marks on their reports like late payments and collections. However, there are still options available specifically designed for those looking to rebuild their credit from past mistakes.
In this comprehensive guide, we will explore specialized credit cards targeted at applicants with poor credit and ways to get approved without an upfront security deposit. We’ll also go over benefits like initial sign-up bonuses, credit limit increase opportunities, and tools to help manage your finances responsibly.
Overcoming Credit Card Denials
Having bad credit often leads to frustrating application denials from mainstream card issuers when you need access to credit the most. They consider applicants with bad credit as high-risk and don’t want to take a chance. Traditional banks and issuers like Chase, Capital One, Citi, and American Express use strict approval criteria based on FICO scores and credit reports.
Applicants with bad credit typically have:
- Low credit scores below 620
- Limited or no credit history
- Past derogatory marks like collections, bankruptcies, foreclosures, or late payments
- High balances and utilization on existing accounts
To overcome frequent denials, specialized subprime credit cards cater to those very applicants with less-than-perfect credit. Instead of denying applicants outright, these cards are designed to provide access to credit so the user can build or repair their credit profile over time.
These issuers do not base approval solely on FICO scores. They look at other eligibility criteria like income rather than just credit reports. This gives applicants with bad credit a fighting chance at getting approved.
Guaranteed Approval
The best credit cards for bad credit provide near-guaranteed approval for new applicants. This means approval is highly likely as long as you meet the basic eligibility criteria.
You can generally expect guaranteed approval if:
- You are 18+ years old
- Have a regular source of income
- Have a valid Social Security Number
- Have a checking or savings account
The income requirements vary but often range from $12,000-20,000 per year. Keep in mind that guaranteed approval does not mean you will receive a high credit limit. Credit limits usually start low for bad credit, around $300 to $500.
Guaranteed approval cards do not do hard credit inquiries during applications. This means applying will not hurt your credit further by lowering your scores. Approval decisions are made based on limited credit data and verified income instead.
However, guaranteed approval cards tend to have high APRs and annual fees to offset their risks. We’ll go over how to avoid or minimize these costs later.
No Security Deposit Needed
Traditional secured credit cards require an upfront cash deposit that acts as collateral. This deposit secures the line of credit extended to the cardholder. The deposit amount becomes the credit limit.
For applicants with bad credit, coming up with a security deposit of $200 or more further hampers approval chances.
The good news is there are unsecured credit cards specially designed for bad credit that do not require a deposit. This removes a major barrier to approval and makes the application process easier.
These cards are able to waive the deposit requirement by charging higher interest rates and fees to the cardholder. So while they do not need an upfront deposit, it ends up costing more in the long run. We’ll go over strategies to minimize these costs.
Sign-Up Bonus Offers
One incentive credit card issuers use to attract subprime borrowers is offering an initial sign-up bonus. This bonus is awarded after meeting a minimum spending requirement within a specified time period after approval.
For example, you may get a $100 cash bonus by spending $500 on purchases in the first 3 months. Meeting the bonus criteria helps start responsible card usage on the right foot.
Besides cash back, common bonuses include:
- Bonus points or miles that can be redeemed for rewards
- 0% intro APR for 3-6 months on new purchases
- Statement credits to help pay down balances faster
Just make sure to not spend more than you can afford just to earn the bonus. Pay off balances in full each month to avoid interest charges.
Credit Limit Increase Opportunities
A major benefit of using cards designed for bad credit is the opportunity to request credit limit increases over time. Initially, the credit limit is likely to be low, around $300 to $500.
However, making on-time minimum payments consistently over the first 6 months can prompt automatic periodic reviews for credit limit increases.
Each time the issuer increases the limit, it shows improving confidence in your ability to manage higher limits responsibly. Increasing credit limits boosts your credit scores by lowering credit utilization.
After 12 months of on-time payments, you may be able to double the initial limit. Some issuers provide a pathway to graduate to their unsecured cards with better terms.
Money Management and Educational Resources
Rebuilding credit requires learning how to manage your finances responsibly. Issuers help cardholders by providing money management tools and educational resources.
Online account dashboards have budgeting calculators and expense tracking. Mobile apps let you monitor balances and payments on-the-go.
Issuers email credit education tips and advice on topics like:
- Improving credit scores
- Avoiding late fees
- Paying down debt faster
- Graduate programs to unsecured cards
Additionally, many issuers provide access to free credit counseling services and financial wellness workshops. This equips users to gain control of their finances.
Lowering Annual Fees
A major cost of credit cards for bad credit is annual fees in the range of $75 to $99 per year. However, there are ways to lower, waive, or eliminate these recurring fees.
- Make on-time payments for the first 5-12 months to qualify for fee waivers
- Call and ask for a waiver after building positive payment history
- Accept automatic credit limit increases to waive fees
- Spend a certain amount in the first year, e.g. $1,000 or more
- Set up autopay from a bank account to avoid late fees
Avoid cards with monthly or application fees which are harder to waive. If fees cannot be lowered, the card may not be worthwhile long-term.
Understanding the Drawbacks
While credit cards for bad credit can be helpful stepping stones, they do come with some drawbacks to be aware of upfront.
High APRs
Expect APRs of 20% or higher. Even a small carried balance can accrue significant interest charges monthly. Get in the habit of paying statement balances in full.
Penalty APR
Missing payments can trigger penalty APRs near 30%. Set up autopay to avoid missed payment fees and penalties.
Low Initial Limits
Initial credit limits around $300 or less limit purchasing power. Spending responsibly and avoiding maxing out the card is key.
Difficult Graduation
Upgrading to better rewards cards in the future can be challenging even after rebuilding credit for 12-24 months.
Fees
Multiple fees like annual, monthly, foreign transaction, balance transfer, and cash advance fees can add up. Read terms to avoid unnecessary costs.
Key Takeaways
- Specialized credit cards for bad credit provide guaranteed approval using eligibility criteria beyond credit scores. No security deposit is required.
- Make on-time payments consistently over 6-12 months to qualify for automatic periodic credit limit increases. This gradually improves credit.
- Accept initial spending bonus offers and redeem rewards responsibly. Use money management tools to build better financial habits.
- Minimize recurring annual fees by meeting payment requirements or through polite requests to waive fees after establishing positive history.
- Be cautious of high interest rates and avoid carrying balances month-to-month. Stick to using under 30% of the available credit limit.
- Gradually improving scores over 12-24 months may help qualify for unsecured cards with better rates and terms in the future.
FAQs
What credit score is needed for guaranteed approval of credit cards for bad credit?
Guaranteed approval cards do not have a minimum credit score requirement. They approve applicants based on income and limited credit history review rather than credit scores alone. Those with no credit or credit scores below 550 have the best approval odds.
How much does the initial credit limit tend to be for bad credit?
Expect starter credit limits of $300 to $500 with most bad credit cards. This limited purchasing power helps reduce risk for issuers. Keep balances low and make on-time payments to get periodic credit limit increases.
Do I need to put down a security deposit?
The major benefit of credit cards marketed for bad credit is NOT requiring any upfront security deposit which is usually $200+ for secured cards. Avoid any card trying to charge application or processing fees before approval.
What kind of credit score increase can I expect?
It’s reasonable to aim for a 50-100 point credit score increase after 6 months of responsible card management. Scores typically improve the fastest in the first 12 months. AfterWhat are some tips to get approved for a credit card with bad credit?
- Focus on specialized subprime credit cards marketed to applicants with bad credit instead of traditional issuers.
- Have at least $12,000-15,000 in verifiable personal or household income.
- Maintain low balances and utilization on any existing revolving accounts.
- Avoid applying for multiple cards in a short timeframe. Spread out applications.
- Enroll in programs to have monthly rent or utility payments reported to credit bureaus.
- Review your credit reports and resolve any errors or outdated information.
What should I do once approved for a credit card for bad credit?
- Activate the card and login to your online account regularly to monitor transactions.
- Consider setting up account alerts via email or text for key events like charges over $50, balance updates etc.
- Make at least the minimum payment on time each month preferably via autopay. Never miss payments.
- Use the card lightly keeping utilization under 30%. Only charge what you can pay back.
- Pay off statement balances in full each month to avoid interest charges.
- After 6+ months of responsible usage, request periodic credit limit increases.
- Build savings to eventually graduate to cards with better rates and switch when you qualify.