You may be surprised that a new card can actually improve your credit score. You can build creditworthiness and better credit habits if you are approved for a card, even if you have bad credit. A new credit card will also improve your credit utilization rate and credit score, if you are already in debt.
Credit cards for people with poor credit are usually not very beneficial. These cards don't offer a welcome bonus and usually have fees such as foreign transaction and annual fees. High interest rates can be associated with credit cards for people with bad credit, making it costly to carry a balance.
It's still important to know that some credit cards are better for people with bad credit than others. Let's look at what credit cards are available to you in May 2023 if you have poor credit and how you can make the most of them.
What is a poor or bad credit score?
You're likely already aware if you have bad credit. A low credit score usually means that you have been refused credit cards or loans because lenders felt you were a risky borrower. If you're like most people, you know why you have bad credit. It could be because you defaulted on a credit card or loan, or had an account sent to collections.
Even if you're not sure, it doesn't hurt to check your score. This will let you know where you stand. There are a number of ways to check your score without cost.
Sign up for free credit tracking software or a service that monitors your credit. Experian Boost, for example, offers consumers a free credit score and can help them improve their score quickly.
FICO is the most common scoring model, so you should pay special attention to it when you are working on improving your credit score. FICO credit scores are categorized into four tiers, ranging from 300 to 800.
If you have a FICO credit score between 580-669, it is considered 'fair credit'. This is below the average for US consumers. If you fall into either of these categories then you need to take immediate action to improve your score.
Best secured credit cards to improve bad credit
Secured credit cards or unsecured credit cards are both available to those with poor credit.
If you have a bad credit rating, secured credit cards are usually the easiest to obtain. Secured credit cards do require an initial cash deposit. You may have to deposit $200, $500, or more to get started. The credit limit will be equal to or near your deposit.
Secured credit cards are typically reported to major credit bureaus. All your timely payments are added to your report and can boost your credit score over time. Even though you must pay a deposit to open a secure card, your deposit is refunded if you close the account in good standing or upgrade with no balance.
You may be eligible for an unsecured card with bad credit in addition to secured cards. These cards are usually accompanied by fees, have low credit limits, and offer few benefits. However, they can still help you build your credit.
Store credit cards can also be a type unsecured credit card, which can be easier to approve for people with poor credit. They can generally only be used in the store that issued the card.
Store credit cards are not only easier to obtain, but they can also save you money. This could be on your first purchase or on future purchases. Store credit cards typically save you 5% off your purchase. They also have other benefits that you might not be aware of.
You should know what you want to achieve before you apply for a credit card in 2023. You can improve your credit rating by getting a new credit card, but you could also make it worse if your are not prepared. Before you apply, consider these questions.
Will I carry a credit card balance? Credit cards with bad credit have high interest rates, so if you plan to carry a debt you may want to consider a secured card. Do I want rewards? Some credit cards are available for people with poor credit. You can earn rewards on the money you spend. Do I want to pay a fee each year? Some credit cards are available for people with poor credit, and some do not. Do I want to take credit seriously? You can improve your credit score with a new card, but this won't happen immediately. Most of the time, a new card won't help you unless you pay off your bills on time and keep your balance down.
When you have bad credit, what to look out for
There are a few 'gotchas' to be aware of and watch out for, including: There are some pitfalls to watch out for.
Fees: You should avoid paying annual fees as much as possible. However, some credit cards (especially those that are aimed at people with poor credit) may charge an account-opening fee or program fee. High APRs: Beware of high interest rates, which can make debt carrying extremely expensive. Credit mistakes: Lastly, be on the lookout for mistakes that can hurt your credit. Paying your credit card late will negatively impact your credit score. Avoid it at all cost.
Improve your credit score by using a new card
You need to understand the factors that determine your FICO credit score if you want to rebuild your credit in 2023. Take a look at your FICO score and the five factors it is based on:
It's simple to determine your next step when you consider these factors. You should pay all of your bills, including your credit card, on time each month. You should also keep your debt low, as the ratio of what you owe to your credit limit is 30% of your FICO Score, otherwise known as your "credit utilization rate."
You should be careful to not max out the credit limit of any card that you obtain with bad credit. Also, pay as much off as you can each month in order to maintain a low credit utilization rate.
You can increase the length of your credit record by keeping older accounts in good standing. And you can maintain a high score in the "new credit" category by not opening too many accounts.
When your credit score falls into the fair or poor range, you might not want to have many different types credit. After you have improved your credit score you can start to diversify your credit by using installment loans, revolving account and other types.
If you want to improve your credit score, it's important to avoid making the same mistakes you made to begin with. If you're going to get a new card, you should be careful how you use it. Avoid cards with high fees, avoid overspending and don't pay late.
Your credit score is good or excellent. You may not have any credit. We've got you covered in our other stories from this series.