By Elyssa Kirkham, Finance Writer
If your credit score has taken a nosedive, you'll need to start using credit responsibly to rebuild it. This can get tricky, however, since many forms of credit require good credit to qualify to use them. That's where credit cards for bad credit come in; these credit cards are easier to qualify for and report credit behavior to credit bureaus, which can help build credit back up.
"Before someone with a low credit score opens a new credit card, he or she should consider [several] factors to determine if it is a smart financial decision or not," said Ken Chaplin, a senior vice president for TransUnion, one of the three major credit bureaus that track U.S. consumers' credit histories. Some of the factors you'll want to consider before applying for a credit card include your history of on-time payments, your financial stability and the credit card's features.
Comparing different credit cards for bad credit is also an important step. The best credit cards for bad credit are easy to qualify for, have lower APRs and low fees, report credit usage to the three major credit bureaus, offer credit card rewards or provide tools that help consumers track and rebuild their credit.
This list of the 10 best credit cards for bad credit will help you quickly find an option to fit your needs and financial habits.
1. Capital One Secured MasterCard
- Credit limit up to $3,000
- No annual fee
- Free access to credit-tracking tools
This option is a secured credit card, which means new cardholders will be required to provide a refundable cash deposit to secure the card once their application is approved. For a Capital One Secured MasterCard, the deposit amounts are fairly low at $49, $99 or $200, based on creditworthiness.
Steven Hughes, a financial mentor and founder of financial literacy advocacy organization Know Money, Inc., named the Capital One Secured card as a top credit card for bad credit. "While the interest rate is high on this secured card (24.99%, barring you don't have a late payment), there's no annual fee and no foreign transaction fees, [which] help you save some money when travelling," Hughes said.
The card also offers free access to Capital One Credit Tracker, which provides real-time free access to your credit score as well as tools to help you simulate and compare how different actions would affect your credit score. Capital One also reports to all three major credit bureaus -- TransUnion, Experian and Equifax.
2. Discover it Secured Credit Card
- Credit limit up to $2,500
- Cash-back rewards are doubled after first year of use
- Free FICO credit score reported on each monthly statement
The Discover it Secured Credit Card requires a refundable deposit of $200 to open, though a cardholder can deposit more to increase their credit limit up to $2,500. The card has no annual fee and an APR of 23.24%. Discover also includes a report of the customer's current credit score from FICO, the most commonly used credit score, with each credit card statement and through its online account management, helping cardholders track their progress toward rebuilding credit.
Cardholders have the chance to earn cashback rewards with a Discover it Secured card -- 1 percent back on all purchases and 2 percent back at restaurants and gas stations (up to $1,000 a quarter). For new Discover it account holders, all cash back earned in the first 12 billing cycles is doubled and applied to the account.
Lastly, the Discover it Secured Credit Card offers customers the chance to transition from a secured card to an unsecured card and have their deposit returned after one year of responsible credit management.
3. Navy Federal Credit Union nRewards Secured Credit Card
- APR as low as 9.24%
- No annual fee, balance transfer fee or foreign transaction fee
- Earn reward points
The nRewards Secured Credit Card from Navy Federal Credit Union is a truly affordable option to rebuild credit. "Navy Federal's nRewards Secured Credit Card is an award-winning card with no 'sign up' fee, annual fee, balance transfer fee or foreign transaction fee," said Matt Freeman, manager of credit card products at Navy Federal Credit Union.
The nRewards Secured card requires a higher security deposit of $500 to open, but comes with few fees and low APRs that start at just 9.24% and only reach as high as 18.00%.
"Also rare is that you can earn rewards (one per $1 spent on purchases with no limit on points earned), which is not the case with most secured cards," Freeman said. Rewards points are valid for up to four years with no limits on points earned, and cardholders can redeem points for rewards like gift cards to popular restaurants, department stores or even a cash card.
4. U.S. Bank LANPASS Visa Secured Card
- Credit limit up to $5,000
- Earn miles, with 5,000-mile bonus for first use
- No annual fee for the first year
U.S. Bank's LANPASS Visa Secured Card is a credit card for bad credit that still offers the chance to earn miles with South American airline LAN Airlines. Cardholders earn one LANPASS mile for every $1 charged to the card with no cap on miles, and will also get a 5,000-mile bonus for first using the LANPASS Visa Secured Card. They also get a 10 percent discount on LAN purchases up to $500 each year.
To open a LANPASS Visa Secured Card, the account opener must make a security deposit of at least $300 and up to $5,000 for a larger credit limit. This card has a 23.24% APR and no annual fee for the first year, after which the fee is $25.
5. USAA Secured Card American Express or Visa Platinum Card
- Earn interest on your security deposit
- No penalty APRs
- Low APRs of 10.15% to 20.15%
USAA offers two similar secured cards that are both among the best credit cards for bad credit: the USAA Secured Card American Express and the USAA Secured Card Visa Platinum.
Opening either card requires a minimum security deposit of just $250, with the option to deposit more to increase the credit limit up to $5,000. A unique perk of the USAA Secured Cards from American Express and Visa, however, is that rather than hold your deposit in any old account, USAA puts it in one of its two-year certificates of deposit where it will earn interest for the cardholder.
These cards also offer low rates, from 10.15% to 20.15% APR and has no foreign transaction fees. They also have an annual fee of $35.
6. Milestone Gold MasterCard
- Instant pre-qualification with no impact to credit score
- Credit score monitoring through a partner
- No security deposit required
Applying for loans or credit cards means that lenders often perform a hard credit pull, which is an inquiry into your credit history that can count against you or temporarily ding your score.
But the Milestone Gold MasterCard offers a pre-qualification process that won't incur a hard credit pull, "which is great because it won't further dent credit, and you may qualify even if you've had a prior bankruptcy," said Priyanka Prakash, a financial specialist for business loan search site FitBiz Loans.
As an unsecured, subprime credit card, the Milestone Gold MasterCard requires no security deposit to open an account, which will have a $300 credit limit. The Milestone Gold MasterCard also provides cardholders with all benefits of a Gold MasterCard, which includes identity theft resolution, extended warranty coverage and price protection on purchases.
The card has an annual fee of $35 to $59, depending on creditworthiness, and a 23.90% APR.
7. Merrick Bank Secured Visa Card
- Open with $200 security deposit
- Low 17.70% APR
- FICO score reported monthly on card statements
Merrick Bank's Secured Visa Card can be secured with a deposit as low as $200. The card's credit limit will match the security deposit, allowing the cardholder to get a limit as high as $3,000. The Merrick Bank Secured Visa card reports to all three major credit bureaus to help build credit.
Cardholders also have access to monthly reporting of their FICO credit score through Merrick Bank's online credit card account management. These regular updates are useful to monitor progress in building credit and to alert the cardholder to potential credit issues.
The Merrick Bank Secured Visa card carries a lower 17.70% APR, which is especially competitive for those with poor credit. It charges a $36 annual fee for the first year, after which the fee is charged at $3 a month.
8. Unity Visa Secured Credit Card
- Lower fixed APR at 17.99%
- $250 security deposit
- Credit limit up to $10,000
The Unity Visa Secured credit card stands out for its interest rate, which is fixed at 17.99% APR through the expiration date of the card. Unlike most credit cards that carry a variable APR that the issuer can raise at any time, a Unity Visa Secured cardholder will lock in this lower APR for as long as they are using their card. It also offers an introductory rate of 9.95% APR for balance transfers for the first six months.
A new account holder can secure a Unity Visa Secured card with as little as $250, and can provide a deposit of up to $10,000 to secure a credit limit of the same amount.
The Unity Visa Secured credit card also provides a complimentary "How to Rebuild Credit Program" that walks new cardholders through the concepts of good credit management and what they'll need to do to effectively build their credit.
9. Credit One Unsecured Platinum Visa Card
- Pre-qualification that won't affect credit
- Free online monthly credit score tracking
- Payment options and protections
The Credit One Unsecured Platinum Visa is another unsecured credit card that offers a pre-qualification process to applicants. This allows applicants to see if they meet the card's requirements without incurring a hard pull and potential ding to their credit score.
For those with low credit scores, the Credit One Unsecured Platinum Visa might carry a higher annual fee. "But the upside is that you can earn 1 percent cash back on groceries and gas, which is hard to come by in a card for people with bad credit," Prakash said.
Cardholders can sign into their online account to view monthly tracking of their credit score. They also have the option to pick a new due date by which their payments must be made within six days before or after the original date.
The Credit One Unsecured Platinum Visa also offers a credit protection program, which will cancel payments due to the card for up to six months if the cardholder becomes involuntarily unemployed or disabled.
10. DCU Visa Platinum Secured Credit Card
- Low APR of 11.75%
- Apple Pay compatibility
- No annual fee
Rounding out the list is the Vsia Platinum Secured Credit Card from DCU, a credit union with locations in Massachusetts and New Hampshire. Its biggest benefits are its low costs, like no annual fee and a low interest rate starting at 11.75% APR. The card also has no fees on cash advances or balance transfers.
This credit card does not require a deposit, but is instead tied to the balance of the cardholder's DCU savings account. The DCU Visa Platinum Secured Credit Card then has a credit limit equal to the savings account balance, which the cardholder borrows against.
The DCU Visa Platinum Secured Credit Card also offers all of the convenience of a Visa card, including compatibility with Apple Pay. It also gets the cardholder access to benefits like free auto rental collision damage waiver, Visa travel insurance coverage and travel services, and extended warranties on many purchases.
Keep Reading: 9 Best Low-Interest Credit Cards for Shopaholics
Some banks and credit unions mentioned might be clients of ConsumerTrack, Inc., which serves more than 100 national, local and online financial institutions.
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