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Maybe no one ever taught you about finances or credit cards, and you didn’t realize only making the minimum monthly payment would lead to serious interest charges and mounting debt that you couldn’t pay back.
Or maybe you lost your job or had a medical emergency, and had to charge bills you couldn’t afford.
So don’t let yourself spiral into shame — instead, consider using a credit card to rebuild your credit. Here’s how.
|Rewards and No Annual Fee||Discover it® Secured (Review)|
|Low Security Deposit||Capital One® Secured Mastercard® (Review)|
|No Bank Account||Citi® Secured Mastercard® (Review)|
|No Credit Check||OpenSky® Secured Visa® Credit Card (Review)|
With no annual fee, cash back rewards (including an intro bonus!), and an easy upgrade to an unsecured card, this is our top pick for a secured card with solid credit-building benefits.
Unlike most secured cards, your initial deposit amount will be based on your creditworthiness, and that will get you a $200 credit limit. You can deposit more for a larger credit line if you’d like.
The biggest perk of this card is you can pay the deposit in-person at a Citibank location, making it the best option for people without a bank account. If you do have a bank account you can apply online.
We only recommend this unsecured Visa as a last resort, however, as no-check credit card issuers often have poor customer service, outdated payment systems, and high fees.
|Earning Rewards||Journey® Student Rewards from Capital One® (Review)|
|No Annual Fee||Capital One® Platinum Credit Card (Review)|
Store credit cards are also decent options for rebuilding credit because they’re usually easier to qualify for than general-use cards. If you’re a frequent shopper at a major retail store, you can try applying for its co-branded credit card. You could, for example, apply for the Walmart Rewards Mastercard® (Review) or Target REDcard™ Credit Card (Review). Both of these unsecured options have relaxed application requirements, no annual fee, and in-store offers.
In general, the higher your scores, the more “creditworthy” lenders deem you; the lower they are, the riskier you appear. When you have poor credit, lenders may charge higher interest rates or fees, or refuse to give you a loan at all. A shaky credit history could also impede your ability to get a job or an apartment.
Your scores may be low because you’ve missed payments, paid bills late, maxed out credit cards, defaulted on loans, or experienced a bankruptcy.
While it can be tempting to swear off credit entirely, the only way to regain the trust of lenders is to demonstrate you can use credit responsibly.
Since credit scores prioritize recent behavior over old behavior in many ways, you have ample opportunity to bring your scores back up.
As we mentioned earlier, you have dozens of credit scores. The most common type comes from the Fair Isaac Corporation; you probably know it as a FICO score.
You can check your FICO scores for free online. You should also check your credit reports with a monitoring service or at AnnualCreditReport.com. There, you can get one free credit report per bureau per year. If you notice any errors, report them immediately — they could be having a detrimental effect on your scores.
Under FICO Score 8, “bad” or “poor” scores are typically seen as about 579 or less. Here’s what goes into your scores:
This chart shows the criteria used to create FICO scores and their relative importance in your credit score.
Given the chart above, the quickest route to better credit scores is making on-time payments and improving your “amounts owed” — both of which you can accomplish with a new credit card.
The first is probably obvious: With a card, you can establish a steady history of on-time payments. Any late payments will cause you to lose points here.
Amounts owed, however, is a little more complex. This takes into account your “credit utilization ratio,” which is how much you owe divided by how much credit you have in total. With a new card, you can increase your available credit and reduce your utilization, which will help your scores.
Let’s say the only credit you currently have is a card with a $1,000 limit, on which you’re carrying a $900 balance. That would make your credit utilization ratio 90% ($900/$1,000) — not good. For strong credit scores, you want this number as low as possible.
But then you get another credit card with a $1,000 limit, increasing your available credit to $2,000. Now, your $900 balance accounts for only 45% of your total credit ($900/$2,000). While not stellar, it’s a lot better, and will continue to improve as you make payments to reduce the balance.
So, opening a new credit card can help with the payment history and amounts owed categories. And, if you didn’t have any credit cards before, it will also help with the “types of credit used” category.
Only pursue this strategy if you know you can be responsible with the new card. If you plan to max out the new card as soon as you get it, you’ll only damage your credit further. While easier said than done, we urge you to pay off your debt before applying for more credit.
Opening a new credit card is good for your credit in the long run, as long as you use it responsibly. Here’s why you may have heard otherwise: When you apply for a card, the issuer performs a “hard inquiry” into your credit reports, causing a temporary dip in scores. Having a new account on your reports also adds to the “new credit” category and will reduce your average account age, both of which will lower your scores a bit. Responsible card use, however, will eventually bring you back up — and beyond.
The biggest choice you’ll face in choosing a credit-rebuilding credit card is whether to go secured or unsecured. (That is, if the choice isn’t made for you, as unsecured cards are harder to get.)
Even though secured cards require a deposit, they’re not the same as debit or prepaid cards. Debit cards pull funds from your checking account and don’t report your behavior to the credit bureaus. Prepaid cards are like gift cards: They don’t require a bank account and don’t have any effect on your credit.
Whether it’s secured or unsecured, here are a few things to look for when you’re searching for a credit-building card:
You’ll note we didn’t mention APR in this list. That’s because we strongly encourage you to pay your statement balance in full when it arrives. If you do this, you won’t pay any interest on your card for purchases, thereby rendering the APR unimportant.
Before applying for any credit cards, you should strive to pay off existing debt if possible. Although it’s not a factor in your credit scores, issuers do consider your debt-to-income (DTI) ratio when deciding whether to approve your card application. (Your DTI ratio isn’t a factor in your credit scores, but don’t forget that credit utilization is.)
We also recommend checking to see if you have any pre-approved card offers. Who knows? You might think you can only get a secured card, before discovering you qualify for a better unsecured card. Doing so is easy and free, and it won’t affect your credit; if you already have an offer, your likelihood of getting approved is quite high.
If you don’t pre-qualify for anything that catches your eye, consider a card’s target demographic before applying. As each application results in a hard inquiry, you should only apply for cards you think you have a reasonably good chance of being approved for.
No luck getting a credit card? Or just looking for an alternative? Consider a credit builder loan. With these, you essentially pay off the loan before getting the money. The lender reports your payments to the credit bureaus, helping you boost your scores over the course of your loan and afterward.
If you’re struggling with a large balance under hefty interest rates with your current card, you can also look for cards that offer a 0% balance transfer APR. These allow you to move that balance over to a new card with a 0% rate, giving you time to pay off the debt at no interest.
Holding that shiny piece of plastic in your hands? Congrats! Now your work has just begun.
Here’s how to make sure your new credit card pushes your scores in the right direction:
If you follow the steps above, you’ll see your scores improve slowly over the course of months, and greatly over the course of years. Then one day, you’ll be able to apply for any of the best credit cards available with good chances of approval.
When it comes to rebuilding credit, you have to pick a credit card that suits your situation.
If your credit is in rough enough shape that you don’t think you’ll qualify for an unsecured card, try the Discover it® Secured (Review) (it’s a secured card with a great rewards program) or the Capital One® Secured Mastercard® (Review) (this secured card may let you place a refundable deposit that’s smaller than your initial credit limit).
Another strong pick is the Journey® Student Rewards from Capital One® (Review). You don’t actually have to be a student to use it, and while it’s unsecured, it’s still designed for applicants with limited to no credit, so your approval odds are probably better than most other unsecured options.
They’re rare, but there are some cards that applicants with poor credit may be able to get without a deposit.
The Journey® Student Rewards from Capital One® (Review) is probably the best option. While it’s intended for applicants with limited to no credit, it doesn’t require a security deposit, and you don’t even have to be a student to use it (though it is one of our favorite student credit cards).
There are a few other cards that require neither a deposit nor a credit check, like the Total Visa® Credit Card. We don’t recommend applying for cards like these if you can avoid it, however, because their fees are typically far too high to be worthwhile unless you have absolutely no other option.
The time it takes to build bad credit into good credit varies on a case-by-case basis. Someone who’s missed one or two payments, for example, may not have as much trouble rebuilding credit as someone who’s missed payment after payment for years before eventually declaring bankruptcy.
It’ll likely take several months (at the very least) of following credit-building best practices to start repairing your credit, no matter your situation. The good news is that negative information on your credit reports must be removed after a certain period of time (typically several years), and even while it’s still on your credit reports, its impact will lessen over time.
See six cards designed for rebuilding credit, including two unsecured cards and four secured options. Learn how to increase your card approval odds and build your credit scores.
Credit Card Insider receives compensation from advertisers whose products may be mentioned on this page. Advertiser relationships do not affect card evaluations. Advertising partners do not edit or endorse our editorial content. Content is accurate to the best of our knowledge when it's published. Learn more in our Editorial Guidelines.
The information related to Discover it® Secured, Capital One® Secured Mastercard®, Citi® Secured Mastercard®, Journey® Student Rewards from Capital One®, and Capital One® Platinum Credit Card have been collected by Credit Card Insider and have not been reviewed or provided by the issuer or provider of these products.
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