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A recent U.S. News survey indicates that 35 percent of people with bad credit don’t do any research before applying for a credit card. Although more than half of the people surveyed have used their credit card for basic necessities in the last year, more than one-third of them are not trying to improve their credit score. Other important findings from the U.S. News survey include:
- Only 24 percent of the people surveyed check their credit report monthly
- Only 34 percent of respondents have improved their credit score in the last year. Almost 40 percent have seen no improvement, and 27 percent don’t know if they have improved their score or not.
- Most (60 percent of respondents) spend less than one hour researching fees, interest rates and terms of conditions when applying for a new card.
- Not everyone knows how to improve their credit, as 20 percent of respondents struggle with knowing how to repair their credit score.
- Most respondents who know how to improve their credit score are taking appropriate steps to do so, with 46 percent trying to pay down balances and 32 percent cutting down on spending.
If you have bad credit, you should work on improving your credit score. With a higher credit score, you can get access to lower interest rates and better credit card terms, such as lower or no annual fees, rewards and cardholder perks such as extended warranty coverage and free roadside assistance.
Experts say you should spend more than an hour researching and comparing credit cards before choosing one, especially in the bad credit category. That way you can identify potentially unfavorable terms, such as high interest rates, fees or a lack of a grace period. You should avoid signing up for a credit card if you plan to carry a balance, especially if the credit card has a high interest rate and fees.
What are Credit Cards for Bad Credit?
Credit cards for bad credit offer access to credit for people with low credit scores, usually those with a credit score in the Very Poor (300-579) range as defined by the FICO scoring model. People with Very Poor credit typically can’t qualify for traditional credit cards, but may qualify for bad credit or subprime credit cards.
Often, cards designed for people with bad credit will have drawbacks that offset risks for the lenders. These can include requiring a security deposit, a high interest rate, low credit limit, high annual fees, other fees and restrictions such as no grace period.
While some cards for bad credit can be predatory, others offer helpful resources for rebuilding your credit. Useful features offered by some cards for bad credit include zero percent introductory APR balance transfers and automatic payments and reminders that can help you pay down debt and avoid missing payments. Some secured credit cards place your security deposit into an interest-bearing savings account. Others offer monthly FICO credit score access so that you can monitor and improve your credit rating, and some have automatic upgrades to unsecured credit card accounts after you consistently manage your credit wisely.
Using Credit Cards to Rebuild Credit
Responsibly managing credit card accounts can help you improve your credit score. U.S. News recommends taking the following steps when using a credit card to improve your credit:
- Set expectations for improving your credit, avoiding quick-fix solutions.
- Find out your credit score and understand the factors that make up the calculation.
- Dispute any errors you find on your credit report, especially identity errors, incorrect account details and fraudulent accounts.
- Keep old accounts open, as a longer credit history and more available credit is typically better.
- Budget and pay off debt, negotiating payment plans for existing accounts.
- Manage your monthly credit utilization, aiming to keep usage under 30 percent of your available credit.
- Shop for new credit cards all at once. New credit inquiries made within a period of up to 45 days of each other will typically be less harmful to your credit score than multiple inquiries spread out over months.
- Consider the benefits and drawbacks of both secured and unsecured cards. Secured cards require a security deposit and typically offer easier approvals and lower APRs, while unsecured cards do not require a cash deposit, but may have higher APRs, annual fees and monthly maintenance fees.
Carefully evaluate credit cards, making sure you understand and compare each card’s annual fee, additional fees, APR, penalty APR, foreign transaction fee, credit limit increases, credit reporting, rewards, automatic unsecured upgrades and additional benefits.
Visit the U.S. News guide to credit cards for bad credit to learn more about the survey and how you can improve your credit score by using credit cards responsibly.