Key points about: finding a credit card if you have poor credit
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Secured credit cards may be an option for borrowers who don’t qualify for traditional, unsecured credit cards due to unestablished or poor credit.
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Secured credit cards require a security deposit equal to the approved credit limit.
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A secured credit card can help you build your credit with responsible use.
You might be facing an uphill battle getting a credit card if you have less than stellar credit or haven’t established a credit history. Fortunately, there areways to get a good credit card, even with poor credit.
Secured credit cards cater to borrowers building or rebuilding credit history. While not everyone may qualify for a secured card, credit score requirements are usually less strict for secured vs. unsecured credit cards, which means a poor credit score may not stop you from getting approved.Let’s learn more about getting a secured card and building credit historyfrom the ground up.
What is a “poor” credit score?
Generally speaking, a“poor” credit score refers to having a low credit score and lenders may worry you’re a risky borrower. As Experian notes, a poor credit score on the FICO® Score 8 scale is below 670.
According to FICO®, a poor credit score is a score from 300-579. A fair credit score–580-669–may also be considered low for some types of credit.
But the FICO® Score is just one credit scoring model and other companies may define scoring ranges differently. It’ll depend on what scoring model the creditor uses.
For instance, VantageScore defines fair credit (650-699) and poor credit (550-649) differently and even has a very poor scoring range (300-549).
What causes a low credit score?
A poor credit score is typically the result of having made late or missed payments to creditors, or maintaining a high credit card balance. If you’re new to credit, you may also have no credit history, or not enough credit activity to have a score. These are some of the categories that are weighed when your credit score is calculated.
How does a secured credit card work?
Secured credit cardsdiffer from unsecured cards because they require a security deposit that is used as collateral. The security deposit amount is set by the credit card issuer and will typically equal your credit limit. This cash deposit acts as payment security for a credit card company in case you miss payments, which is why secured cards may have lower requirements compared to unsecured cards.
Many credit card issuers will report your secured card account activity to thethree major credit bureaus. So paying at least the minimum payment on time on your balance each month can also help you build your credit with responsible use. After you make a series of on-time payments to your secured card, you may be eligible to get your deposit back.
When can you graduate from a secured to an unsecured credit card?
It’s important to remember that apoor credit history doesn’t necessarily mean a poor credit future. Secured credit cards let you demonstrate responsible credit management, such as making timely payments and maintaining a low credit utilization (the amount of credit you’re using compared to your total available credit).
As you build or rebuild your credit history using a secured credit card, you may qualify to transition to an unsecured card. Keep in mind that if you graduate from a secured card, your account number, benefits, and rewards often remain the same.
Did you know?
With the Discover it® Secured Card, you can upgrade to an unsecured card after 6 consecutive on-time payments and maintaining good status on all your credit accounts.1 Discover secured cards also offer cash back rewards on every purchase.
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What should you look for in a secured credit card?
Many secured credit cards come with a higher interest rate and lower credit limit than unsecured cards. But you can still make the most of your card.
Consider secured cards that offer rewards for eligible purchases. And look for secured credit cards with no annual fee. At Discover®, there’s no credit score required to apply2 and there’s no annual fee on any of our cards.
You may also want to double-check that the credit card company you choose does report payment history to the three major credit bureaus. Otherwise, your responsible credit use may not help with rebuilding your credit history.
It may seem daunting, but finding good credit cards with a poor credit history is possible with secured credit cards. As you narrow your search, be sure to review each card’s terms and conditions to find the best credit card for you.
