When you have poor credit, as is the case when your credit score is below 600, lenders understandably hesitate before extending credit card offers. Secured cards may be your best short-term option. While you may get offers for unsecured cards, read the applications carefully before accepting. Some providers prey on desperate consumers with few other options and get them to open accounts that are more about collecting fees than extending credit.
Even those with poor credit often qualify for a secured credit card. These cards require you to send a deposit to the issuing bank that serves as collateral for the line of credit. Though the credit limits are usually small, prudent use of a secured card can help rebuild your credit score; by managing your account effectively, you might find many issuers will offer you an unsecured card after about a year of on-time payments. Check with the issuer to make sure the account activity is being reported to Equifax, Experian and TransUnion -- the three major credit bureaus.
Retail cards often are issued by the same banks that hand out unsecured cards, so getting one if you have poor credit is far from automatic. However, Equifax reports, there’s a built-in incentive for retailers to approve cards so you’ll buy more products from them. Retail cards are notorious for having low limits, so they’re easy to max out. Keeping your balance at less than 30 percent of your credit line will make you look good to other potential lenders.
Getting an unsecured card with poor credit is a challenge. If you succeed, expect lower credit lines and higher interest rates and fees than those with better credit histories receive. So-called “fee-harvester cards” can’t charge fees in excess of 25 percent of the available credit line during the account’s first year, but given the low credit limits associated with such cards, that drastically reduces spending power even if issuers obey the law. A card with a $300 limit can charge a $75 annual fee and still meet that benchmark.
Talk to Your Bank
Regardless of whether you’re looking for a secured card or an unsecured card, your best bet may be to talk to your current bank or credit union. As long as you don’t have a rash of overdrafts or transactions denied for insufficient funds, being an existing customer may make you eligible for a lower-rate card. In addition, as you pay your bills on time and your delinquencies start to fade further into the past, your credit score will rise enough to improve your options.