Editorial Policy

Bad credit? Don't settle for a bad card

Erica Sandberg

January 10, 2014

QDear Erica,

Which banks have cards for poor credit besides Capital One, First Premier and Credit One? — Henry

AHi Henry,

There's an old matchmaker's saying: For each pot, there is a lid. In fact, very often there are many toppers that will fit just fine. And that's the same for hopeful borrowers. More than the few lenders you listed work with those who have imperfect credit histories. Some are better than others, though, so let me help you meet your ideal plastic partner.Ask Erica

The best way to begin any new relationship is to know who you are and what you want, and then explore what is available to you. You don't want to shoot too low and accept something beneath you, or aim too high and then be rejected.

To know who you are (at least when it comes to your credit profile), pull your credit reports online from each of the three credit bureaus (Experian, Equifax and TransUnion) and your FICO scores (again, you'll have three — one from each bureau). The credit reports are free once per year from AnnualCreditReport.com, and the latter will run you about $20 per score from MyFICO.com.

Assuming that your credit file is riddled with late payments, collection accounts, judgments and the like, you're right — you have poor credit. Your FICO scores will confirm that with numbers ranging from 300 (the lowest score you can get) to the 500s.

If your scores fall in that range, ask yourself this: Do you want to have a credit card now, or can you take some time to improve your credit rating? If you want to jump in immediately, your options will be more limited and the terms worse than if you hiked your scores up with a few simple actions: delete debt, honor your payment due dates and allow time to cure old wounds.

Don't want to delay? Check here for the issuers that currently have products for people with bad credit. As you'll soon see, there is a decent array — those issuers you mentioned and a few others. Most (if not all) of the credit cards are secured cards, which require you to make a deposit with the issuer to secure a (usually small) credit line. Be careful, though: Some of the cards listed are not actually credit cards but prepaid cards, which you fill up with cash and then use to make purchases. Prepaid card issuers don't send your payment information to bureaus (because no borrowing and repaying is taking place). While that can be beneficial if you don't trust yourself with credit quite yet, prepaid cards won't help you build a credit history.

In general, secured cards are the way to go for those with bad credit. Because you'll be putting down a cash deposit, issuers may be more likely to give you a chance. Plus, your use of the card will be reported to the credit bureaus. That means every month you use the card responsibly (paying off the balance on time and in full), you're repairing the damage that was holding you back from more attractive accounts. Then again, if you just want a card to buy things, and don't care to borrow at all, a prepaid card can be a fine alternative.

Ultimately, I would not fixate on which bank or credit card issuer provides the card, but rather on the card itself. If you go for a credit card, look for one with the lowest interest rate, a sufficient credit line and few, if any, extra fees. Secured cards generally do come with an annual fee, but see if you can get one without “processing fees” and other one-time application fees.

As for good prepaid cards, it's all about the fees. They can be excessive, so be careful to read the terms before accepting one into your life. You may be charged for adding money to the card, using the card at an ATM and making customer service calls.

Now, if you do go for a credit card, remember that it's a relationship you're building with the creditor. Be trustworthy and honorable by paying your debts when you should and by keeping your balances low. When you do, you'll find that it won't be long before other issuers are giving you the come-hither wink.

Got a question for Erica? Send her an email.