If you have bad credit getting a new credit card may seem out of reach. On one hand, you know it takes credit to rebuild your credit. But on the other hand, you don’t know the first step.
Some people go to their bank or credit union to apply for a new credit card, thinking that they’ll be easily approved because of their existing relationship with the financial institution. However, not all banks and credit unions cater to people with bad credit, and if you find yourself repeatedly denied for a credit card, you may throw in the towel.
Unfortunately, giving up doesn’t solve the problem. Bad credit doesn’t disappear over time. It’s true that negative information on your credit report will fall off in 7 to 10 years, thus improving your credit over time. But why wait this long?
Bad credit can impact various areas of your life. Not only does it become harder to get a credit card or loan, if you’re approved for financing, you will pay a much higher interest rate than someone with an excellent credit history. And if you rent an apartment, the landlord may require a higher security deposit because of your shaky credit history. But the problem don’t stop here. Getting a job in the finance industry can also prove challenging with poor credit.
Don’t think it’s impossible to get a new card with a low credit score – it’s all about knowing where to look.
Get a Secured credit card
An unsecured credit card is not your only option. If you have a low credit score and discover that it is difficult to get a new credit card, consider applying for a secured credit card. These credit cards are offered by different banks, and the objective is to help people with low credit or no credit build their scores. These credit cards work like unsecured credit cards, with one primary difference.
To get a secured credit card, you have to pay the issuing bank a security deposit. But don’t panic – security deposits are affordable, with most banks approving your application with deposits as low as $250 or $300. Understand that your security deposit will determine your credit limit. For example, if you apply and submit a $300 deposit, you will receive a credit card with a $300 limit.
There are many benefits to going this route. Not only because you’re able to get approved with bad credit, but if you make timely payments and show that you’re capable of managing your credit, the issuing bank will gradually increase your credit limit. As time moves forward, the issuing bank may refund your security deposit and convert your secured credit card to an unsecured card.
Tips for Shopping for a Secured Credit Card
A secured credit card can definitely be the answer if you’re looking for a card, but don’t apply for just any type of card. Make sure you contact multiple banks and inquire about terms. For example, will the bank report to the three major credit bureaus on a monthly basis? What is the annual fee? Is there a monthly maintenance fee?
Secured credit cards can be costly in the beginning, but with a little research you can find a card that fits into your budget.