Getting a Credit Card When You Have Bad Credit

Even if you have bad credit, you may be able to get a credit card. Here's how.

If you have bad credit, getting a credit card is difficult, but not always impossible. Once you get your finances under control, your goal is to build your way to a regular credit card issued by a bank. There are several ways to do this, from applying for a card from a small retailer or gasoline company to getting a secured credit card.

Is Having a Credit Card a Good Idea?

Before you try to get a new credit card, be honest about whether you will use it wisely. Credit cards can be dangerous to your financial well-being if you use them to buy things you cannot afford. If misusing credit cards is what caused your credit rating to sink in the first place, then perhaps it would be wise to steer clear of credit cards for the time being. (To learn about using your cards responsibly, see Nolo's article Avoiding Credit Card Debt.)

However, there are several very good reasons to have a credit card:

• For an emergency. A credit card can be a lifesaver if you have to pay for emergency expenses that go beyond your savings for example, repairing a leaky roof or paying for a necessary medical procedure. Charge the expense, and then pay it off as quickly as possible.
• To build credit. A good way to develop a positive credit history is to obtain a credit card and make timely payments. But beware: If you can't pay the balance off each month, don't use it. (To learn more about building credit, see Nolo's article Rebuilding Credit FAQ.)
• To get airline miles or other "points." If you pay your credit card balance off each month, you can get airline miles or points towards other goods and services for free (assuming your card does not have an annual fee).
• To reserve hotel rooms or rental cars. Many hotels, car rental companies, and other vacation amenities require a credit card in order to make a reservation.

Steps to Getting a Credit Card

If you can't get a credit card right away, take steps to build credit. In this way, you can work your way towards a credit card:

Open bank deposit accounts. Creditors look for bank accounts as a sign of stability and proof that you can pay your bills. In fact, most credit card applications require a checking account number.

Start with a small retail store or gasoline company card. These are often the easiest cards to get. If you get a card, charge items, and pay the bill on time. This will start building a positive credit history for other credit card holders to look at.

Apply for a bank credit card with a low credit line. Next, apply for a regular bank credit card (such as Visa or MasterCard) with a low credit line. At first, you may only qualify for a card with high interest rates and a high annual fee. If you use your card responsibly, after a year you can apply for an increase in your credit line and a decrease in your interest rate and annual fee. Or, you can apply for another card that has better terms. (To learn more about credit card terms, see Nolo's article Shopping for Credit Cards.)

Your Credit Card Application

When you are ready to apply for a credit card, follow these tips to increase the chance that your application will be accepted.

Be consistent with the name you use. Either use your middle initial always or never. Always use your generation (Jr., Sr., II, and so on).

Be honest, but appear sympathetic. Portray yourself in the best light. If your credit troubles were due to a job loss, illness or death in the family, recent divorce, or new child support obligation, be sure to mention this on the application.

Apply for credit when you are most likely to get it. If possible, apply for a new credit card when you are working, have lived at the same address for at least one year, and when you don't have an unusually high number of inquiries on your credit report in the last two years. Creditors view too many inquiries as a sign that you are desperate or preparing to commit fraud. (To learn more about your credit report, see Nolo's article How to Clean Up Your Credit Report.)

Apply for credit where you've done business. If your phone company, insurance company, or bank offers credit cards, try them first. If you have a good payment history or good relationship with the business, it will be more likely to give you the card.