It can happen to anyone. But it’s happened to you and you suddenly realize your credit is shot.
Maybe no one ever taught you about finances or credit cards. Maybe 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 you could have lost your job, or you had a medical emergency and had to charge bills you couldn’t afford.
However it happened, your credit is rock bottom and you need a way to rebuild it. You’re not alone: More than 20% of Americans have “deep subprime” credit scores, according to Experian.
So don’t let yourself spiral into shame. Instead, consider using a credit card to rebuild your credit. Here’s how.
3 Best Secured Credit Cards for Rebuilding Credit
Best for rewards and no annual fee: Discover it® Secured
Our rating: 5 out of 5
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.
Best for low security deposit: Capital One Platinum Secured Credit Card
Our rating: 4 out of 5
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.
Best for no credit check: OpenSky® Secured Visa® Credit Card
Our rating: 2 out of 5
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this unsecured Visa as a last resort, however, as no-check credit card issuers often have poor customer service, outdated payment systems, and high fees.
3 Best Unsecured Cards for Rebuilding Credit
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Best for earning rewards: Journey Student Rewards from Capital One
Our rating: 4 out of 5
This card has no annual fee, no foreign transaction fees and you can earn 1% cash back on all of your purchases. You may be automatically considered for a higher credit limit after 6 months.
Best for no annual fee: Capital One Platinum Credit Card
Our rating: 4 out of 5
This card also has no annual fee, no foreign transaction fees and you may be automatically considered for a higher credit limit after 6 months, with the added benefit of fraud protection.
Best for easy acceptance: Petal® 1 No Annual Fee Visa® Card
Our rating: 5 out of 5
This card also has no annual fee, no foreign transaction fees and you may be automatically considered for a higher credit limit after 6 months. Petal offers 2% – 10% cash back at select merchants with a credit limit of $300 – $5,000.
Pro Tip: 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. Unsecured options have relaxed application requirements, no annual fee, and in-store offers.
What Exactly Are Credit Scores?
Your “credit” isn’t one single entity. It’s made up of several credit reports and dozens of different credit scores.
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.
How Can Credit Cards Improve Bad Credit?
Simply put, credit cards allow you to build your credit scores by making consistent on-time payments that are reported by credit card issuers to the credit bureaus.
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.
What’s in your credit score?
The factors used to calculate FICO scores are:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Types of credit used: 10%
- New credit: 10%
As you can see from the breakdown 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, it’s 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.
How to Choose a Card for Rebuilding Your Credit
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.)
- Secured credit cards: Require an upfront deposit that serves as collateral for your loan. Your credit limit is typically equal to the deposit, although in some cases you can get a higher limit. Deposits usually start around $200 and tend to max out around $2,000 or $3,000. Secured cards are a great way to start rebuilding your credit, with the only caveat being that your credit line will usually be relatively low (meaning your credit utilization may be high).
- Unsecured credit cards: Extend you a line of credit based on your creditworthiness – no deposit needed. While these are generally a better option, due to their lower fees and higher credit limits, they might not be available if your credit scores are very low.
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:
- Low or no annual fee: Because age of accounts is an important factor in credit scores, you should aim to hold on to your new card for as long as possible. That’s why you should also aim to find a card without an annual fee – or at least a very reasonable one that you won’t mind paying.
- Few additional fees: Financial institutions often hedge the risk of lending to subprime borrowers by charging exorbitant fees. Watch out for setup, monthly maintenance, and credit limit increase fees.
- Good customer service and payment options: Some issuers have terrible customer service or outdated portals that make it difficult to pay on time. So before applying for a credit card, read the reviews. You should also make sure your chosen card offers zero fraud liability, so you won’t be on the hook for charges if it’s lost or stolen (this comes standard on the major credit cards).
- Credit bureau reporting: Although most card issuers report your payments to all three credit bureaus, some smaller companies don’t. Without this, your new card isn’t going to improve your credit, so make sure it reports to TransUnion, Equifax, and Experian.
- Automatic upgrades: When it comes to secured cards, some issuers periodically review your behavior – if you’ve been making on-time payments and your overall credit satisfies their criteria, they’ll automatically refund your deposit and upgrade you to an unsecured credit card. That’s a huge perk, since you won’t have to apply for a different card and face another hard inquiry on your credit reports.
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.
How Can You Get Approved for a Credit Card With Bad Credit?
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 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.
Pro Tip: 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.
How Do I Improve My Credit Scores?
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:
- Make on-time payments: Whatever you do, pay your bills before the due date. While you should always pay at least the minimum, we recommend paying the statement balance in full to avoid interest charges. Setting up automatic payments is always a great idea.
- Use your card: Don’t let your card collect dust in a drawer. Make purchases with it at least once a month, but don’t come close to maxing it out. One smart, hands-off strategy is to put a recurring charge on your card – like a gym membership – then set up automatic payments to make sure you never miss a beat.
- Sign up for a credit monitoring service: Stay motivated by watching your scores rise through a site like Credit Karma or Credit Sesame. You can also use services from major banks like Discover, Chase, and Capital One (whether you use any of their credit cards or not).
- Ask for credit limit increases: Once you’ve graduated to an unsecured card, regularly ask the issuer for a higher credit line. If you keep your spending the same, this is an easy way to reduce your credit utilization and further improve your scores.
- Keep your accounts open: An important factor in your credit scores is your average age of accounts. That means you should avoid closing old credit cards unless they come with high annual fees that aren’t worth paying.
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.
Frequently Asked Questions
What’s the best credit card for rebuilding credit?
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 (it’s a secured card with a great rewards program) or the Capital One Platinum Secured Credit Card (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. 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.
Can you get a credit card for rebuilding credit with no deposit?
They’re rare, but there are some cards that applicants with poor credit may be able to get without a deposit.
The Petal® 1 No Annual Fee Visa® Card is one of your best options, with low fees and a modern approach that could make rebuilding credit fairly painless. 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). Consider the Capital One Platinum Credit Card as well.
There are also some subprime cards with high fees and poor customer support that don’t require deposits. 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.
How long does it take to rebuild credit?
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.