Credit Building Credit Cards for Bad Credit: Your Options

Kylie Ora Lobell
May 13, 2022

It's easy to get into hot water when it comes to credit cards, and even easier to have life and bad luck leave you with a less than perfect credit score.

Maybe you couldn’t pay your bills and went into collections, you took on more debt than you could handle or you applied for—or canceled—too many credit cards.

Now, even if it’s years later, that "bad" credit score may mean you're not eligible for a regular credit card.

That doesn’t mean you can’t get a credit card at all, however. Thankfully, there are credit-building credit cards for bad credit.

They may work differently than other types of credit cards, but they will enable you to build credit and get back on track with your credit score. And in time, you’ll once again be able to apply for a regular credit card.

How a Credit Card Can Hurt or Help Your Credit

If you’re already in a bad place financially and have low credit, a new credit card could both help and hurt you. 

The first thing you’ll need to be aware of is that whenever you apply for a credit card—whether it’s a regular one or a credit card for bad credit—there will be a hard inquiry into your credit report.

This will lower your score temporarily, so you want to be deliberate about how many cards you apply for at once. 

Second, if you already have poor credit and you keep a card open for purchases, this could be dangerous. You may make a late payment, or accidentally buy more than you can repay in one billing cycle, adding interest to your debt.

When you open a new card, it will also lower the average age of your credit, so you won’t have as long of a credit history. The longer the history, the better, so you need to be careful.

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Rebuilding Credit

On the flip side, a credit card can help you with rebuilding credit if you’ve learned to use a line of credit responsibly.

If you keep your credit utilization ratio (the amount of debt you have compared to the amount of credit you have) below 30%, then your score will be higher. 

Additionally, if you pay your bill on time and in full every month, then your score should go up.

If you’re able to keep cards open for years on end, you’ll have a longer credit history and a higher score.

The higher your credit score, the more attractive you’ll look to lenders, which will open up the potential for better credit cards, credit lines, and loans. 

This can lead to lowering interest on large purchases, such as a car or house, as well as offering better control of who you choose to do business with.

Credit Scores Explained

In understanding good versus bad credit, it’s important to review the general rating system.

Here is the FICO score chart for your reference: 

  • Poor credit: 300-579
  • Fair credit: 580-669
  • Good credit: 670-739
  • Very good credit: 740-799
  • Exceptional credit: 800-850

If you want to give yourself a credit check, you can obtain your report from any of the three major credit bureaus: Experian, Equifax, and TransUnion—they will give you a free credit report, score included, and show you how you rank. 

You may also choose to monitor your credit as you go with a service such as Credit Karma or Credit Sesame, or get your credit score through free programs at your bank or credit union.

How a Credit-Building Credit Card Works

If you’ve never had a credit card before or your credit is poor, you can typically get a credit-building credit card.

The way credit building credit cards work is the same as secured credit cards, as opposed to unsecured credit cards.

With secured credit cards, you send your card provider a refundable security deposit when you sign up.

You may also have to pay higher fees, like foreign transaction fees, than you would pay with an unsecured credit card. 

Once you open your account, you can start using your card up to the credit limit. You should always use your card responsibly when rebuilding credit by paying your bill on time and in full, making sure your credit utilization ratio stays low and monitoring your credit report. Staying in good standing is key!

If you are eligible, you may prequalify for a student credit card, but that’s usually only if you have very little or no credit history and are a current student.

There are low credit limits on these, so don’t expect a higher credit limit like with a typical card, but you may be able to find one with a rewards program, such as cashback rewards. (Remember: you can still have bad credit even as a first-year credit card applicant.)

Some credit building cards are closer to a secured credit card. These cards don't require a deposit, but usually offer a specialized program to encourage positive spending habits and credit management.

What to Look for in a Credit-Building Credit Card 

When looking for a credit-building credit card, find one that will offer the lowest fees possible.

You should also be able to manage the card and pay off your bill upfront every month. So even if you’re offered a credit card with a higher spending limit, if you’ve maxed out credit cards in the past and haven’t been able to pay them, you could be tempted to do the same. You could request a lower spending limit or try to find a different card. 

It’s possible that you’ll be able to get an unsecured credit card, but you’ll have to pay higher fees. The fees could end up being more than the refundable security deposit, and you could go right back into debt if you’re struggling to pay the fees. Do the math to figure out the better option.

The cherry on top is also having a rewards credit card, which will come in handy when making purchases at places like the grocery store, the gas station, or at your favorite retailers.

But if this means higher fees, again, it may not be worth it. You’ll have to review which terms apply and decide after doing your research. 

Companies That Offer Credit-Building Cards

Credit card companies like Discover, Visa, Capital One, and Mastercard all offer credit-building credit cards for people with no credit or poor credit.

For instance, some examples of these cards include:

  • The Capital One Platinum Secured Credit Card
  • Credit One Bank Platinum Visa for Rebuilding Credit
  • OpenSky Secured Visa Credit Card
  • The Capital One Platinum Secured Credit Card. 

Note: At this time, Citi does not offer a card for those with bad credit.

When searching for the best credit cards cardholders should be wary of high fees (look for no annual fees and low interest rates).

Credit card issuers with the most attractive offers will also provide you with perks like rewards, which you can use when shopping or apply as statement credits to your balance.

They may not even have deposit requirements, which is more convenient for you, and they might give you free access to your credit score through their website or a mobile app, as well as fraud liability services.

During the application process, the credit card company is going to look at your credit score, credit history and payment history, report and creditworthiness to decide whether or not to approve you for the card. 

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Other Ways to Build Your Credit

If you don’t want to get a credit card for bad credit, there are some other ways to improve your score.

You could:

Pay Your Bills on Time

You’ll need to exercise responsible use by paying your bills by their due dates. If you don’t make on-time payments, then this could greatly impact your credit score.

Use Experian Boost

A neat tool to utilize is Experian Boost. Add it to your Experian account and include your utility and phone bills to build credit. 

Try Loans

There are credit-building loans you could use to build your credit score. Again, the same rules apply to loans that apply to cards: pay them on time, every time. 

Use a Balance Transfer Card

With a balance transfer card, you could transfer your credit card balance to a card with an intro APR of 0% for a certain period of time, like 12 or 18 months.

You’ll just need to pay a 3% or 5% transfer fee depending on the card issuer. In the meantime, you’ll save a lot of money if you have a card with high interest and be able to get out of debt faster.

The Bottom Line

When it comes to your personal finances, if you want to increase your credit score, then credit building credit cards may be a great tool for you.

Just make sure that you stay on top of your monthly payment and you review all your credit card offers—including fees—to determine which one is right for you. 

Remember, good credit card management is key when building or even rebuilding your credit, so be deliberate with your credit choices.

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer with over 10 years of experience working with publications like MoneyGeek, Slickdeals, LegalZoom, OppLoans, SoFi and TaxAct. She has also been published in New York Magazine and the Los Angeles Times.

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