While there are still plenty of bad apples in the barrel, there are an increasing number of viable credit card options for people with bad credit or no credit. Still, it’s important to do your homework before applying to make sure you don’t sign up for a card with costly surprises.
For example, although the Credit Card Act of 2009 capped fees issuers can charge upfront, many secured credit cards (often the only option for those with bad credit) come with monthly fees of as high as $10 to $12 a month, says Mike Sullivan, director of education at Take Charge America.
“We also see people with purchase APRs well over 30 percent in this card segment,” Sullivan says. “Those are the biggest remaining issues people with bad credit need to look out for.”
Also, when applying for a credit card designed for people with bad or no credit, keep in mind that these cards, at least initially, will not give you access to any significant line of credit.
Despite their costs and limitations, bad credit credit cards can be important tools for building a better credit record and creating a more secure financial future. For this reason, you’re better off applying for a credit card instead of simply getting a prepaid card, as the latter will not help build credit. With this in mind, here are our top three picks for the best credit cards for consumers with bad credit and no credit.
1. Capital One Secured MasterCard
The Capital One Secured MasterCard is a semi-secured card, which is a breed of cards available for people with bad credit. With a true secured credit card, you get a credit limit that’s equal to the amount you deposit in advance. With a semi-secured card, however, you can secure a larger credit line with a fairly low deposit. With this card, for example, a $49 refundable deposit may give you an initial credit limit of $200.
The initial deposit required for the Capital One Secured MasterCard will depend on creditworthiness, and may be $49, $99 or $200. The credit limit will start out relatively low, but can go as high as $3,000. You can increase the limit over time by depositing more money, and the card issuer will also raise the limit over time as you build up a positive credit record on the account.
The Capital One Secured MasterCard comes with a $29 annual fee and a 22.9 percent APR on purchases. The card reports to all three credit bureaus monthly (not all secured cards do), meaning that responsible use will likely boost your credit rating.
2. First Progress Platinum Secured MasterCard
Issued by Synovus Bank in Columbus, Ga., the First Progress Platinum card is a traditional secured card without the traditional tricks and traps. Your credit line is secured by a refundable deposit of $300 to $2,000, and for this card, the deposit paid is equivalent to the credit line you get.
The First Progress Platinum card comes with a relatively low 14.99 percent variable APR on purchases. That’s quite low, considering APRs for bad credit credit cards can be as high as 36 percent. In addition to the initial security deposit, cardholders pay a $39 annual fee, which is deducted from the credit line available on the day of card opening.
The First Progress Platinum card is available for U.S. residents, except those residing in New York, Wisconsin, Iowa or Arkansas.
3. Capital One Cash Rewards for Newcomers
Card issuers are increasingly differentiating between people with bad credit and those with a limited credit background. This is good news if you have little or no credit history, because there are many more card options available, and offers tend to come with better terms.
Our favorite card in the “no credit” category is the Capital One Cash Rewards for Newcomers. Unlike cards for bad credit, this is not a secured card, so no initial deposit is required. There is no annual fee, and cardholders earn 1 percent cash back on all general purchases and 2 percent on travel purchases.
The one drawback? The card comes with a whopping 24.9 percent APR on purchases and transfers, a steep rate that should help remind you to never carry a balance forward on the card.