Rebuilding your credit rating takes time. Moreover, a key part of the process includes demonstrating your ability to manage debt responsibly. Thus, while it may seem counterintuitive, opening and using a new credit card can accelerate the improvement of a low credit score.
Truth be told, it isn’t all that hard to find a financial institution willing to provide new credit cards to consumers with poor credit ratings. The competitive nature of the financial services industry has unfortunately led to some predatory practices. If you’re not careful, you could worsen your situation by accumulating debt on a credit card with high spending limits and exorbitantly high-interest rates, making it difficult to pay down while managing your other obligations.
A much better option is to get a credit card specifically designed for people with damaged credit ratings. These cards are usually secured. This means you’ll have to put up a deposit to open an account. This deposit acts as a form of insurance, giving the financial institution recourse to collect any debt you default on.
Such cards usually have low credit limits, but that’s a built-in safeguard to prevent overspending. If you use the card regularly, make your monthly payments on time, and use the card responsibly, you’ll see your credit score start to improve within months.
Credit One Bank Platinum Visa
Suitable for consumers with credit scores in the 560 to 850 range, the Credit One Bank Platinum Visa card is one of very few on the market that allows you to enroll with a co-signer. This feature can boost your chances of approval. Additionally, the card comes with cashback features that deliver one percent returns on all purchases. Other perks include automatic credit limit increase reviews and Credit One Bank actively reporting your payments to credit agencies every month.
Consumers who use this card have posted rave reviews about it. As such, it has some of the highest customer satisfaction ratings of any credit-rebuilding card we were able to find.
A couple of minor drawbacks to consider include:
- Your interest rate and the annual fee will depend on your current credit score, and;
- They will adjust negatively if your rating is lower.
Current rates range from 20.24 percent to 26.24 percent.
Capital One Secured Mastercard
This Capital One Mastercard is intended for consumers whose credit ratings have taken a hit but are not in bankruptcy territory. It features a variable annual percentage rate that maxes out at 26.99 percent. On the bright side, there are no annual fees to worry about.
You will need an existing savings or checking account to qualify for the card. Therefore, consumers with severely damaged credit ratings may not meet eligibility standards. However, if you’re able to get this card, you’ll benefit in many ways.
First, this secured card delivers an initial credit limit of $200, but you can deposit as little as $49. Even better, you can pay the deposit in multiple installments, making it easy to come up with the money to obtain the card.
Plus, Capital One will consider increasing your credit limit if you complete your first five payments on schedule. This delivers ongoing rewards for responsible use.
Armed Forces Bank Credit Builder Secured Visa
The Credit Builder Secured Visa from Armed Forces Bank offers a unique feature. Cardholders can automatically raise their credit limit by offering up additional deposit payments in $50 chunks. Your initial deposit of $300 gets you a $300 limit, which you can continue to raise as long as your account is in good standing. The card also has a variable interest rate that peaks at 23.24 percent. This rate is reasonable for the low-credit market segment.
There’s only one downside: an annual fee of $25. However, this is offset by the fact that your deposit accumulates interest as long as the bank doesn’t need to draw it down to cover a defaulted balance.
Discover It Secured
The Discover It Secured card is packed with features. These features make it one of the leading options for consumers seeking to rebuild their credit ratings. This includes:
- No annual fee;
- Two percent cash back on gas and restaurant purchases of up to $1,000 per financial quarter;
- Unlimited one percent cash back on all your other transactions;
- 10.99 percent interest rate on balance transfers for up to six months, and;
- Discover will automatically look at your account after eight months and offer you an unsecured card if you’ve behaved responsibly.
There are two disadvantages to keep in mind. First, you must pay a deposit equal to your initial credit limit through an established bank account. So, if you don’t have a bank account, you won’t be able to get this card. Second, Discover is working hard to expand its reach, but it isn’t accepted by as many merchants as Visa or Mastercard. As such, you may be limited in your ability to use it.
DCU Visa Platinum Secured Credit Card
Personal finance experts stress the importance of paying off your credit card balance in full every month in order to maximize your rebuilding efforts. However, this isn’t always possible if you’re managing a heavy debt load.
Therefore, the DCU Visa Platinum Secured card is a fantastic option for consumers who anticipate the occasional need to carry a balance. Its low variable interest rate goes no higher than 13.75 percent, which is about half the standard level for a secured credit card. Other perks include no annual fees, free cash advances, and free balance transfers.
The only inconvenience is that you need to be a member of the Digital Federal Credit Union to get this card. It’s relatively easy to qualify for membership, but you’ll still have to complete the extra step to take advantage of this well-reviewed offer.
A Few Final Thoughts
Knowing how to navigate the credit card market will help you make a savvy choice that will make it easier for you to reach your credit improvement goals. Unsecured cards may seem to offer an advantage by sidestepping the need to offer up a deposit, but they also carry higher interest rates and fees that usually nullify any such advantages.
In general, it’s best to get a secured card until your credit rating improves to the point that you qualify for an unsecured alternative that doesn’t come with punitive fees, soaring interest rates, and other limitations. If you have a source of income and you haven’t declared bankruptcy, you will qualify for most of the secured cards on the market.