7 ways to get credit with a low credit score
By Jennifer Nelson
June 23, 2016
Some people — students and those new to the country, for example — have a low credit score simply because they have little or no credit history. Others may be rebuilding credit after a setback, such as divorce or bankruptcy.
Regardless of why your credit scores are less than stellar, there are ways to get a card to build your credit score to show lenders that you can handle credit responsibly.
A New York Federal Reserve study found that as credit has become easier to obtain over the past year, more people with low credit ratings are applying for credit. Access to credit tends to get easier in a healthier economy.
So get your credit scores, so you know where you stand. You can get your FICO scores for free from Discover’s Credit Scorecard or your VantageScore from Capital One’s CreditWise or CreditCards.com’s my.creditcards.com.
Once you know your score, here are seven ways to get credit when you know your score is poor, fair or otherwise in need of a boost:
1. Aim for cards that don’t require a high credit score.
Try to get an entry-level credit card within your credit score range, as chances are greater your credit application will be approved.
Listed below are a few cards available for folks with poor to fair or good credit. Just what qualifies as poor, fair or good credit? FICO and the latest VantageScore have a range from 300-850, with these general credit tiers: poor 600-649, fair 650-699, good 700-749, excellent 750 and above.
Don’t apply for several cards at once, as each application triggers a hard inquiry on your credit report, which temporarily lowers your credit score. Choose a card that’s in your credit range that best suits your needs and spending lifestyle.
Note, though, that some cards for consumers with poor or fair credit have fees and interest rates higher than the average credit card APR of 15.19 percent. To avoid incurring interest charges, it’s very important to pay off the entire balance by the due date.
|Credit Score||Card||Interest Rate||Annual Fee|
|Fair||USAA Classic Platinum Visa (open to U.S military, veterans and eligible family)||18.15-24.15%||$35|
|Fair/ Good||Milestone Gold MasterCard||23.90%||$35-$99 (depending on credit score)|
|Fair||Barclaycard Rewards MasterCard||25.24%||$0|
|Poor||Credit One Bank Cash Back Rewards Card||15.65-24.1 %||$0-99|
2. Apply for a secured card.
A secured card can be a smart way to build — or rebuild — credit.
“When choosing a secured card, stick to a reputable bank, and make sure you read all the fine print,” says Marissa Sullivan with American Consumer Credit Counseling Services. “Some cards have extremely high interest rates and unreasonable fees and are looking to prey on people with low or no credit.”
Also, not all secured cards report payment activity to the credit reporting agencies. Choose a secured card that does.
After six months to a year of responsible use with a secured card, your credit score should improve enough that you may be eligible for an unsecured card.
3. Become an authorized user on someone’s card.
Maybe a parent, spouse or other loved one with excellent credit could add you as an authorized user on their credit card account. If so, being an authorized user means the account history of that card appears on both the primary account holder and authorized user’s credit reports.
“This is an easy way to begin developing a credit history,” says Daraius Dubash, a co-founder of MillionMileSecrets. “You may even get a sign-up bonus if you decide to get the same card on your own once you have better credit.”
Note, though, that if for some reason the primary account holder misses payments or has other credit issues, this will also negatively affect your credit. And if you overspend or don’t reimburse the cardholder for your charges, you likely will be jeopardizing your relationship — as well as your own and the account holder’s credit.
4. Sign up for a store card.
Store cards, such as those available from The Gap and Best Buy, are often easier to be approved for than for general purchase credit cards.
Two cautions about store cards: Store cards tend to have higher interest rates and lower credit limits, so be sure you buy only what you can pay off by the bill due date. And typically these cards can be used only at that retailer unless the card is co-branded with Visa, MasterCard or American Express.
5. Take out a credit-builder loan.
Credit builder loans are small loans, typically ranging from under $500 to $1,500, made by some credit unions and a few banks to consumers who need credit help, but who have their financial situation under control.
A credit-builder loan will add variety to the types of credit you have, and that looks good on your credit report, says Sullivan.
There are different types of credit builder loans. The unsecured variety offers a lump sum upfront that can be used for an emergency expense, such as a medical expense. Another type freezes the loan proceeds until the total amount has been paid off, which forces the consumer to save and protects the lender from default.
When considering a credit builder loan, shop for the loan that will work best for your needs, always pay on time and don’t rush repayment. The whole point of a credit builder loan is to build credit, so don’t pay it off early.
“You can’t really put a timetable on it, but the longer you stay current in paying your bills and not defaulting, it slowly fixes itself.”
— Ravi Ramnarain,
a South Florida CPA
6. Register with an alternative credit score company.
If you don’t have enough credit history, services such as eCredable and PRBC will create a credit score and build a credit history based on bills that normally don’t count toward your credit report, such as rent and utilities. These services are aimed at helping the “credit invisible.”
These alternative credit score companies keep track of your payments. “They don’t send that information to the credit bureaus, or combine it with FICO in any way, but instead use their own credit score system,” says Jaycob Arbogast, financial planner and investment adviser at Arbogast Advisers.
“Once you have a solid score with them, you can offer that as a replacement to a poor FICO score,” Arbogast says. “Not every lender opts to accept these credit scores, just like not every lender checks all three of the big credit bureaus.”
If you are seeking a loan in the near future for which you don’t currently qualify, check with the lender to make sure alternative credit scoring models are accepted before you go to the trouble of signing up. PRBC’s website says its scores are accepted by over 8,500 lenders.
7. Keep your card accounts open.
If you already have a card — or once you have one — use it wisely and your score will rise in time. If you add more cards to your wallet down the road, try to keep your oldest account open, charging something every few months on it to keep it active and paying your bill in full and on time.
Why? The length of your credit history accounts for 15 percent of your FICO score. The longer you’ve had credit accounts and managed them well, the better your score.
If after trying any or all of these tips you’re still dealing with poor credit, abstain from acquiring new debt, says Ravi Ramnarain, a South Florida CPA. Just because you can get credit doesn’t always mean you should.
“People ask all the time how long it takes to rebuild your credit score,” he says. “You can’t really put a timetable on it, but the longer you stay current in paying your bills and not defaulting, it slowly fixes itself.”