The Best Credit Card for Your Needs
When you’re in the market for a new credit card, it can be easy to feel a bit overwhelmed by the sheer number of options available today. While some credit cards are designed for building or improving credit, others reward consumers who have excellent credit with a host of benefits. Still, that’s not the whole story.
Some credit card issuers, like Capital One and Barclaycard, are known for having looser credit standards, but getting approved for an American Express or Discover with bad to fair credit isn’t likely. There are also many types of cards to explore, from low interest cards and secured credit cards to business cards and rewards cards.
Here’s what you should know about choosing the right card for your needs.
Combating Bad Credit and Getting Approved
It’s not hard to get approved for a credit card if you have bad credit; in fact, it’s downright easy. The challenge is finding a solid credit card that will help you rebuild your credit, not trap you in a cycle of debt with sky-high fees and interest rates.
Before applying for a credit card, take steps to improve your credit score as much as possible.
- Order free copies of your credit reports. You have the legal right to request free copies of your TransUnion, Equifax, and Experian credit reports at AnnualCreditReport.com. Check your credit reports for any mistakes, like accounts that are mistakenly reported as late or charged off, incorrect balances or credit limits, accounts that aren’t yours, or public records that don’t belong to you. Dispute any errors.
- Decrease your credit utilization ratio. This is the amount of debt you have relative to your total credit limit. It’s one of the most important factors that determine your FICO score. Make a goal of reducing your credit utilization to 10-15% of your credit limits to quickly boost your score.
- Establish on-time payment history. While this step takes time, your payment history accounts for 35% of your credit score. Establishing good payment history will reduce the negative impact of past late payments and collection accounts.
These steps can help you improve your credit score in as little as one month, but establishing a good payment history can take at least six months to see results. The next step is determining which type of credit card is right for you.
Secured Credit Cards
If you have bad credit or have recent bad marks on your credit report, such as bankruptcy, a secured credit card is a good place to start. Secured cards work just like regular credit cards except they require a security deposit that is usually equal to your new credit limit. With a secured credit card, you can establish credit and build a positive payment history. Most card issuers will convert your card to a regular credit card after one year of on-time payments and refund the deposit.
The best secured credit cards include:
- Capital One Secured Mastercard – while most secured cards give you a credit limit equal to your deposit, the Capital One Secured card gives you a credit limit of at least $200 with a deposit of $49, $149, or $200. It has no annual fee and reports to credit bureaus as an unsecured card for an even better bonus.
- Discover it Secured card – Discover has higher credit requirements than Capital One, but you may qualify for the Discover it Secured card if you do not have a bankruptcy on your report. This card earns the same 5% cash back rewards program as the unsecured credit card.
Retail Credit Cards
The next step up from secured credit cards are store credit cards. Retail cards are usually easy to get, but they do have high interest rates and only work at that retailer. While some store credit cards offer perks like discounted shopping days, they don’t usually have much in the way of rewards. Be sure you don’t carry a balance if you use a store card to improve your credit score.
Perhaps the best retail credit card currently available is the Target REDcard which gives you a 5% discount on all Target purchases.
Travel Credit Cards
You can still qualify for a travel rewards card even if you have bad to fair credit. There are two types of travel credit cards: branded cards associated with an airline or hotel, and general rewards cards. General travel cards are typically easier to get when you have poor credit and they offer greater versatility.
Consider the following options:
- Discover it Miles – you only need fair to average credit to qualify for the Discover it Miles card, but keep in mind Discover still has stricter standards than some card issuers. You can’t have a bankruptcy on your record. This card earns a flat 1.5 miles for every $1 you spend which is equal to 1.5% cash back.
- Southwest Rapid Rewards Plus card – want to earn airline miles while improving your credit? Southwest is one of the few airline-branded credit cards available for consumers with average credit. The card offers generous loyalty and signup bonuses and the points you earn help you qualify for Southwest’s Companion Pass.
Rewards Credit Cards
Have poor to average credit but want to earn rewards while you learn responsible credit use? Reward cards earn cash back or points on every transaction, but it’s important that you never carry a balance or the interest charges will certainly eat up any rewards you earn.
- Capital One QuicksilverOne Cash Rewards – Capital One is known for its easy credit requirements and range of credit cards for people who want to rebuild their credit. The QuicksilverOne card earns 1.5% cash back on all purchases and you can get approved with limited or fair credit.
- Barclaycard Rewards Mastercard – Barclaycard is trying to give Capital One a run for its money by targeting the subprime market with competitive rewards cards. The card has no annual fee. You can earn 2x points on utilities, groceries, and gas, and 1 point per $1 on everything else.
Business Credit Cards
Business credit cards can help you start or grow your small business by improving cash flow, allowing you to buy inventory and supplies, or giving you some leverage while you get your feet off the ground.
While many of the best business rewards cards require excellent credit, the following business cards are a good option if your credit score is less than stellar.
- Capital One Spark Miles for Business – this card offers 2 miles for every $1 you spend that can be used toward statement credits against eligible travel expenses. Unlike branded travel cards, you can book travel through third-party discount sites to get the best price. The card does have a $59 annual fee, but it has a sizable sign-up bonus.
- Bank of America Cash Rewards for Business Mastercard – this is one of the few business cards that requires average credit but it comes with generous rewards. Get 3% cash back on gasoline and office supplies, 2% back at restaurants, and 1% cash back on all other purchases.
While it can feel like your options are limited when you have poor credit, the truth is there are plenty of credit products available that can help you build or rebuild your credit, including several that even come with generous rewards programs.