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How to Get a Credit Card With Bad Credit

✇Lifehacker
Meredith Dietz

It's one thing to get a credit card when you have no credit history—but what if the history you do have is, well, not great? Sure, having a low credit score will make obtaining a traditional credit card challenging, but it's not impossible. Let's take a look at the options available to help you secure a credit card, even with bad credit.

Consider secured credit cards

Secured credit cards are an excellent starting point for those with poor credit. With a secured card, you place a refundable security deposit, typically $200 or more, that becomes your credit limit. The deposit acts as collateral, reducing the issuer's risk. Many major banks and credit card companies offer secured cards.

Of course, be sure to make all of your payments on time and keep your balance low. After 12 to 18 months of responsible usage, you can often upgrade to a regular unsecured card and get your initial deposit back.

Look for cards designed for bad credit

Several issuers offer unsecured credit cards specifically designed for people with poor credit. However, do keep in mind that these cards often have higher fees and interest rates, and lower credit limits. Read the terms carefully before applying to understand all associated costs.

Become an authorized user

This strategy involves asking a family member or trusted friend to add you as an authorized user on their credit card account. You'll receive a card in your name linked to their account, and their positive payment history can help boost your credit score. Ensure the primary cardholder has a good credit history and responsible habits. Not all issuers report authorized user activity to credit bureaus, so check first.

Try store credit cards

Target, Kohl's, whatever suits your fancy—retail store cards can be easier to qualify for than traditional credit cards. While not ideal in the long run, retail store credit cards can at least help give your score a boost, since they often have more lenient credit requirements. However, it's crucial to be cautious of high APRs on these bad boys, which can often exceed 25%. Still, their limited use (only at the specific store or chain) can help control spending. Some stores offer instant approval, allowing immediate purchases.

Explore alternative credit cards

Some newer companies offer credit cards based on alternative data, considering factors like income, employment, and bank account history instead of just credit scores. While I don't have any personal experience with them, examples include the Petal Card and the Tomo Credit Card.

Improve your credit score

While working on getting a credit card, take steps to improve your overall credit health:

  • Pay all bills on time, every time.

  • Reduce your credit utilization ratio by paying down existing debts.

  • Dispute any errors on your credit report.

  • Avoid applying for too many cards in a short period, as this can further lower your score.

As your credit improves, you'll qualify for better card offers.

Get a credit-builder loan

With a credit-builder loan, you borrow an amount like $500 or $1,000 and make fixed payments over six to 24 months. The lender deposits the borrowed amount into a locked savings account, and once you've completed the loan payments the money is unlocked and given to you. These loans are designed solely for building credit history.

Be cautious of predatory lenders

When desperate for credit, it's easy to fall prey to predatory lenders. Avoid:

  • Cards with extremely high fees or interest rates.

  • Offers that seem too good to be true.

  • Lenders who use high-pressure tactics or rush you to decide.

  • Payday loans or cash advance loans, which can trap you in a cycle of debt.

Check for pre-qualification

Many credit card issuers offer pre-qualification tools on their websites. These tools perform a soft credit pull, which doesn't affect your credit score. Pre-qualification gives you an idea of your approval odds before applying, but it doesn't guarantee approval.

Remember, the key to rebuilding your credit is using any new credit responsibly. Make payments on time, keep your credit utilization low, and avoid overspending. With patience and good financial habits, you can improve your credit score and qualify for better credit cards in the future. For more, here are some of the best credit cards for people with bad credit.

The Best Strategies for Lowering Your Credit Card Interest Rate

✇Lifehacker
Meredith Dietz

If you carry a balance on your credit card, you're paying interest charges. First things first: Figure out how to avoid being charged that interest in the first place. Otherwise, the easiest way to reduce your credit card interest payments is surprisingly simple: just ask. Many cardholders overlook this straightforward approach, potentially leaving money on the table. Here's how to go about lowering your interest rate, so you have a better shot of getting on top of your credit card debt.

Evaluate your current situation

Before making any moves, it's important to understand your current financial position. Start by reviewing your credit score and payment history, as these factors significantly influence your negotiating power. Next, compare your current interest rate to what's available in the market for similar credit profiles. This research will give you a realistic idea of what you might qualify for. Finally, calculate how much you could potentially save with a lower rate. This figure will not only motivate you but also provide a concrete goal for your negotiations.

Prepare before calling

Preparation is key to any successful negotiation. Begin by gathering information on competitor offers, especially those you've recently received in the mail or online. These can serve as leverage during your conversation. Make a mental note of your positive account history, including how long you've been a customer and your record of on-time payments. Be ready to discuss your loyalty as a customer, highlighting any other accounts or services you have with the same institution.

Making the call

When you're ready to negotiate, contact your card issuer's customer service line. Ask to speak with a representative specifically about lowering your interest rate. Remember to be polite but firm in your request. Your demeanor can significantly impact the outcome of the conversation. Approach the call with confidence, knowing you've done your homework and have a strong case for a rate reduction.

What to say on the phone

During the conversation, focus on highlighting your good payment history and loyalty to the company. Mention any better offers you've received from competitors, using them as a point of comparison. Be specific about the rate you're seeking, based on your research of current market offers. Remember, the representative may not agree to your first request, so be prepared to negotiate.

If they don't agree

If the representative doesn't agree to lower your rate, don't give up. Ask to speak with a supervisor who may have more authority to adjust rates. Inquire about temporary promotional rates that could provide short-term relief. If all else fails, consider a balance transfer to a card with a lower rate, but be sure to factor in any balance transfer fees when calculating potential savings. Remember, even if you don't succeed on your first attempt, you can always try again in a few months, especially if your credit score improves or your financial situation changes.

How much you can save

There are no guarantees your credit card company will approve a decreased interest rate, but the potential savings make it worth trying. According to LendingTree, the average reduction that people receive is 6.3 percentage points. Not only that, but more than three in every four cardholders who asked for a lower interest rate on one of their credit cards got one, according to that same 2023 survey.

Depending on your circumstances, that type of decrease could save you $500 or more in interest. Let's say a cardholder has $5,000 credit card balance and pays $250 per month.

  • A 6.3-percentage point reduction from 23.84% to 17.54% saves $478 and two months worth of payments. That adds up to $1,436 over 26 months (versus $958 over 24 months).

  • A 6.3-percentage-point reduction from 27.00% to 20.70% saves $532 and two months worth of payments. That adds up to $1,717 over 26 months (versus $1,185 over 24 months).

How to Decide If a Credit Card Balance Transfer Is the Right Move

✇Lifehacker
Meredith Dietz

Credit card balance transfers are a useful yet often misunderstood tool. When used strategically, they can offer a path to debt reduction and financial stability. However, like any financial instrument, balance transfers come with both opportunities and pitfalls.

At its core, a balance transfer is the process of moving debt from one credit card to another, typically to take advantage of a lower interest rate. Many credit card issuers offer promotional balance transfer rates, often as low as 0% APR for a limited time, as an incentive for new customers. Here's when a balance transfer does and doesn't make sense, and the steps it takes to do it.

When a balance transfer makes sense (and when it doesn't)

Balance transfers can be an excellent strategy when you have a plan to pay off the debt within the promotional period. It makes sense when interest savings outweigh the balance transfer fee, and when you're committed to not accumulating new debt on the old card.

However, balance transfers may not be advisable if you can't qualify for a card with better terms than your current one, or the transfer fee would cost more than you'd save on interest. If you don't have a realistic plan to pay off the balance before the promotional rate expires, then you might slip into to viewing the transfer as a reason to accumulate more debt.

Pros and cons of balance transfers

Benefits:

  • Interest savings: The primary advantage of a balance transfer is the potential for significant interest savings, especially with 0% APR offers.

  • Debt consolidation: Transferring multiple balances to a single card can simplify your finances and make it easier to track payments.

  • Breathing room: A promotional period can give you time to catch up on payments without accruing additional interest.

Drawbacks:

  • Transfer fees: Most balance transfers come with a fee, typically 3-5% of the transferred amount.

  • Limited time offer: The low interest rate is temporary. If you don't pay off the balance in time, you could face high interest rates.

  • Credit score impact: Applying for a new card and increasing your credit utilization on one card can temporarily lower your credit score.

Steps to complete a balance transfer

If a balance transfer is right for you, here's how to do it.

  1. Assess your current situation: Begin by taking a hard look at your existing credit card debt. Note the balance on each card, their respective interest rates, and your current monthly payments. This information will be crucial in determining whether a balance transfer makes financial sense for you.

  2. Research balance transfer offers: Explore the market for balance transfer offers. Look for cards offering low or 0% introductory APR periods. Pay attention to the length of these promotional periods, which typically range from six to 21 months.

  3. Calculate potential savings: Use online balance transfer calculators or create a spreadsheet to estimate how much you could save with different offers. Don't forget to factor in balance transfer fees, which usually range from 3% to 5% of the transferred amount.

  4. Check your credit score: The best balance transfer offers are usually reserved for those with good to excellent credit. Check your credit score to get an idea of which offers you might qualify for.

  5. Apply for the new card: Once you've identified the best offer for your situation, apply for the new credit card. Be prepared to provide personal and financial information.

  6. Initiate the transfer: If approved, contact the new card issuer to initiate the balance transfer. You'll need to provide information about your old card and the amount you wish to transfer.

  7. Continue payments on the old card: Until you receive confirmation that the transfer is complete, continue making payments on your old card to avoid late fees.

  8. Create a repayment plan: Develop a strategy to pay off the transferred balance before the promotional period ends. Divide the total balance by the number of months in the promotional period to determine your monthly payment goal.

Finding a long term solution

While balance transfers can provide immediate relief, they're not a cure-all for financial troubles. To truly benefit from a balance transfer, it's crucial to address the underlying issues that led to the debt in the first place. This might involve creating a budget, building an emergency fund, or seeking financial counseling.

Remember, a balance transfer is a tool, not a solution. Used wisely, it can be a stepping stone to financial stability. But like any tool, its effectiveness depends entirely on how you use it.

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