The Top Credit Cards to Fix Your Bad Credit Scores

Oct 07, 2016 | Be First to Comment!

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Your credit score is a lender's first source of information on how financially responsible you might be - and a low score could send all the wrong signals. Do you know where your credit score is in the commonly used credit scoring range?

The most commonly used credit score (FICO) ranges from 300 to 850, with an 850 considered to be a “perfect” score. A score in the 560 to 650 range, on the other hand, is generally considered “bad” credit. If your score is in this range, financial institutions might think it would be risky to lend to you. Because of that, it’s likely to be more difficult to get approved for credit cards, mortgages, and other loans. And if you are approved for credit, you're going to be given a higher interest rate than you'd have with a better credit score.

How Your Credit Score Can Affect Your Future Mortgage Rate

How Your Credit Score Can Affect Your Future Mortgage Rate

Credit Score Range 30-Year Fixed Rate Mortgage 5-year fixed rate mortgage 7/1 ARM
620-639 4.684% 4.016% 4.506%
640-679 4.138% 3.47826% 3.96%
660-679 3.708% 3.04% 3.53%
680-699 3.494% 2.826% 3.316%
700-759 3.317% 2.649% 3.139%
760-850 3.095% 2.427% 2.917%

How Your Credit Score Can Affect Your Next Car Loan

How Your Credit Score Can Affect Your Next Car Loan

Credit Score Range 60-Month new Car Loan 40-Month Used Car Loan
500-589 14.824% 16.325%
590-619 13.74% 15.086%
620-659 9.398% 10.186%
660-689 6.747% 7.599%
690-719 4.656% 5.322%
720-850 3.331% 3.778%

How Your Credit Score Can Affect Your Next General Loan

How Your Credit Score Can Affect Your Next General Loan

Credit Score Range HELOC Home Equity Loan
620-639 10.680% 10.164%
640-669 9.180% 8.914%
670-699 7.680% 7.414%
700-719 6.305% 6.639%
720-739 5.055% 6.139%
740-850 4.680% 5.837%
In terms of your credit card options specifically, bad credit means there are certain cards you won’t be able to qualify for at all. Fortunately, there are a handful of cards you can use to work on building your score up. Keep reading to see which credit cards we recommend if your credit is lower than you'd like and you’re ready to improve your score.

Top Credit Cards for Credit Scores in the 560-650 Range

Discover it® Secured Credit Card

The Discover it® Secured Credit Card card is a secured credit card that helps you increase your credit score while earning some rewards. This card has no annual fee and you can open an account with a security deposit of just $200. Your initial deposit also sets that size of your credit line.

This card pays cash back on purchases, which is rare for a secured card. You’ll earn 2% cash back at restaurants and gas stations on the first $1,000 in combined purchases each quarter. After that, you’ll earn 1% back on those purchases. You always earn unlimited 1% back on everything else.

Discover gives free FICO score access to all its cardholders (and even non-cardholders). That means you can log into your account and watch your credit score improve as the months go on, a great motivator for this process.

Besides just giving you rewards and access to your credit score, this card also provides an opportunity to upgrade after you exhibit positive behavior. After your account’s been open for a year, Discover will review your history to determine whether you're eligible for an unsecured card. If you get the go-ahead, your entire security deposit is refunded to you and you can start using that new card with a new credit limit.

Wells Fargo Secured Visa® Credit Card

The Wells Fargo Secured Visa® Credit Card sets itself apart from other secured cards in one very specific way. You can deposit up to $10,000, which is much higher than the limits of most other secured credit cards. And, with such a higher deposit limit, you’ll get an equally-high credit limit.

The higher your credit limit and the lower your balance from month to month, the better your credit utilization ratio will be - a factor that makes up 30% of your credit score.

Credit utilization refers to how much of your available credit you’re using at any given time and it’s one of the most significant factors in calculating your credit score. Having a card with a very high limit can help your score as long as you keep a low balance.

This card does have a $25 annual fee. While you won’t earn rewards, you do get some nice extras. If you travel, for example, you’ll have access to Visa Signature perks such as roadside dispatch and 24/7 emergency assistance. And, like the Discover card, you'll also have the ability to move up to an unsecured card once you’ve established a positive payment history.

Tip: If you have a Wells Fargo checking account, you can link it to your Secured Visa card for additional overdraft protection.

Capital One® Platinum Credit Card

If you’re looking for a no-annual-fee card that doesn’t require a security deposit, the Capital One® Platinum Credit Card fits the bill. It’s aimed at people whose credit scores fall into the average range and who want to take their scores to the next level.

The reason there's no security deposit required is because this isn't a secured card. Keep in mind, however, that the lower your score, the lower your credit line is likely to be (as is the case with all credit cards). On the plus side, if you make five consecutive payments on time, Capital One will review your account to consider a credit limit increase.

Like Discover, Capital One also gives you access to your credit score so you can watch your progress as you go. Capital One provides this through CreditWise, Capital One's free credit monitoring service. With CreditWise, you’ll get your TransUnion credit score once a month, along with insight into what’s causing the fluctuations in your score (positive or negative).

Tip: Even though you’re not getting a FICO credit score through Capital One’s credit tool, you can still use the TransUnion score to track your progress, as it will still be reflected in your FICO score.

What is a Secured Credit Card?

Two of the three credit cards we’ve profiled are some of the best secured credit cards out there, but do you know what a secured credit card is? Simply put, a secured card is a credit card that requires a cash security deposit to open an account. Your credit line is typically equal to the amount you deposit and you can usually raise your credit limit by giving the card issuer more cash.

Banks offer secured credit cards to people whose credit scores are less than perfect due to past credit behaviors such as late payments, accounts going into collections, or bankruptcy. The cash deposit on the card is the bank's insurance policy in case of default. The deposit only acts as collateral and it can be refunded when the card is closed.

How Secured Credit Cards Boost Low Credit Scores

Unsecured credit cards don’t require you to jump through the hoops of making a cash deposit, but they’re designed for people who already have a good track record with credit. When you’re trying to repair a low credit score or establish credit for the first time, a secured card makes more sense because it will be easier to qualify for.

That doesn't mean there are no downfalls to secured card. Two things to look out for are high annual fees and high interest rates. You can mitigate the annual fee by looking for a no-annual-fee secured card. And you can mitigate high interest rates by securing a card with a low interest rate and/or ensuring that you always pay the balance off by the end of the billing cycle (so you won't have to pay for interest at all).

What is a FICO Score?

Credit Score Factors

There are many kinds of credit scores out there. However, FICO scores are the most universally accepted. These scores were developed in the 1950s by Fair Isaac and they’re now used by more than 90% of major U.S. lenders. It’s possible for the average consumer to have more than 50 different FICO scores, depending on which score model a lender uses to check your credit.

The exact formulas for calculating credit scores are not released to the public. But, FICO scores are determined these five main factors:

  • Payment history – Payment history is the most important that influences your credit rating and it counts towards 35% of your FICO score.
  • Amounts owed – Another 30% of your FICO score is based on the total amount of debt you owe. This is where the credit utilization ratio mentioned earlier comes into play.
  • Length of credit history – The average age of your credit accounts makes up 15% of your FICO score. The longer your credit history, the better your score.
  • Inquiries for new credit – New inquiries for credit cards, loans, or lines of credit count for 10% of your credit score.
  • Types of credit used – The remaining 10% of your credit score is determined by the different types of credit you’re using.

FICO scores can be obtained in different ways. Usually, it costs $20 each to get your FICO score, but more and more financial institutions are offering them for free.

How to Get a Better Score Fast

If you want to improve your credit score, it’s not something you can do overnight - but there are a few ways to speed up the process. Here are some tips for moving your score out of the 560 to 650 range:

  • Always pay on time. Missing even one payment on a credit card or a loan can knock up to 100 points off your score. If you struggle with staying on top of due dates, set up payment reminders or schedule automatic payments with your bank to stay on track.
  • Keep your balances low. Lenders want to see that you’re using credit responsibly - and part of that means keeping your credit utilization ratio in check. Ideally, you should be using 30% or less of your available credit at any time. If you’re above that mark, work on paying down your balances. Then, keep future charges to a minimum.
  • Keep old accounts open. If you’ve paid off a credit card, you might be tempted to close the account down for good - but not so fast. Closing out an account, especially one that’s older, can negatively affect the age of your credit history and in turn, negatively affect your credit score.
  • Mix it up. Lenders like to know that you’re adept at using different types of credit wisely. Open a credit card account if your only debts are installment loans or consider taking out a small personal loan if you’ve only ever used credit cards to add some balance to your credit file. However, since this makes up a relatively small part of your score, it's probably best to only take these steps if you were in the market for new credit anyway.
  • Apply for new credit sparingly. Each time you apply for a new credit account, your score takes a small hit. Inquiries can affect your score for up to two years, so avoid applying for credit unless it’s an absolute must.

Once you've increased your credit score beyond 650, you'll start to qualify for some of the best credit cards on the market. And, believe it or not, it might not take you long to get there if you follow these steps.

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