How to Get a Credit Card When You Have Bad Credit

By Damian Davila. Last updated 15 April 2018. 2 comments

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A bad credit score can happen to anyone. Perhaps you bit off more that you could chew during the holiday season, or have been in between jobs for a long time and missed several monthly payments. Sometimes circumstances arise and you have to declare bankruptcy.

When you have a terrible credit score, the last thing on your mind is getting a credit card. However, it can be a savvy way to start rebuilding your credit. Here is how to get a credit card when you have bad credit. (See also: Best Secured Credit Cards)

Become a Member of a Local Credit Union

Unlike banks, credit unions are not for-profit. The main goal of any credit union is to make financial services more accessible to its members. That's not a typo: Credit unions don't have clients as every member is a shareholder with voting rights. (See also: Why Choose a Credit Union Instead of a Bank)

To become a member, a credit union often holds your first deposit of about $100 for one to three years. Once the hold period expires, your credit union keeps only $5 on hold and gives the rest back to you. In exchange for your deposit, the credit union doesn't charge you monthly fees, require you to have a minimum account balance, charge you ATM fees within its network, or limit your withdrawals per month. This amounts to plenty of savings in fees, which is money that you can use to pay down your other debts and meet your monthly payments.

The best part is that credit unions offer better credit card interest rates than banks. According to the National Credit Union Administration, the average annual interest rate for credit cards issued by credit unions is 11.56%, while for those issued by banks is 12.87%. For example, the Aloha Pacific Federal Credit Union offers VISA credit cards starting at a 8.00% APR. Additionally, almost all credit unions charge no annual fees for their credit cards.

Given the $100 initial deposit, several credit unions have very low requirements to issue a $400 to $500 credit card. The most important requirement is that you are able to provide proof of employment. This is a great way to access a credit card even with bad credit and work towards improving your credit score.

Get a Secured Credit Card

But, what if you are not eligible for any credit union? It is true that you have to qualify to become a member. For example, there are credit unions for university students, federal and state employees, or members of professional associations. Also, it is possible that there is just no credit unions available in your area.

In that case, your best option is to get a secured credit card. Unlike regular credit cards, secured ones may not require a credit check. This is a great advantage for those with bad credit because it does away with a hard inquiry and the possibility of getting dinged with a credit denial.

A secured credit card works just like a prepaid gift card. For example, if you deposit $400 in your account, then your credit limit is $400.

Secured credit cards offer several advantages to those with bad credit:

  • Provides a "last resort" solution to getting a credit card, which is essential to build back up your credit score.
  • Through responsible management over time, allows you to build higher credit limits that may not require a deposit.
  • Gathers evidence for the three credit bureaus (Equifax, Experian, and TransUnion) of good debt management, which boosts your credit score.
  • Allows you to become eligible for "regular" credit cards from the same financial institution over time.

When evaluating secured credit cards (See also: The 5 Best Secured Credit Cards), remember to:

  • Avoid cards with application or setup fees.
  • Select a card with a low annual fee and a simple cost structure.
  • Choose cards that appear as regular credit cards, not secured ones, on your credit report.
  • Understand the rules to qualify the lowest interest rate before applying.
  • Look for cards with cash or gas rewards.
  • Inquire about additional benefits, such as car rental insurance and no charge for foreign transactions.

The Bottom Line on Credit Cards

Notice that we have not included here finding a cosigner as a recommended way to get a credit card in case of bad credit. While it is an easy route to qualify for certain credit cards, it does not address the main problem: your poor credit score. Additionally, it is a decision that if things go sour, could kill a relationship with a family or friend. (See also: 7 Decisions That Seem OK Now, but Might Ruin Your Finances Later)

Remember that a credit score is necessary for applying to some jobs and setting rates for financial products, such as car and life insurance. This is why it is important to maintain a credit card even during periods of bad credit, so that you can rebuild your credit score.

How did you get a credit card while having bad credit?

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Guest's picture

These tactics work in the short run. But in the long run, opening up new accounts won’t help your score. Also, having new credit cards can tempt you into spending more, hence accumulate more debt. In the future, if you want to cancel accounts, it will reflect badly on your score report. I recommend everyone to have the lowest number of credit cards possible to keep a good score record. There is no easy and immediate solution to improve your report; you simply have to work for it. Control your spending habits, earn extra cash on the side, and pay off your debts. It might take a long time, but using shortcuts can actually increase the debt-paying period even more.

Damian Davila's picture

Thank you for the input Noah. Yes, these tactics are meant to work over time. There is no such thing as an immediate way to rebuild credit.