Bad credit? Securing a credit card isn't impossible

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As we recently reported, more than one-quarter of Americans now have credit scores below 600. Unfortunately for these borrowers, this makes obtaining credit - especially the unsecured revolving type such as a credit card - difficult. While some might argue that making credit less readily available to people with low scores is a good thing (no one wants to repeat the mistake of a few years ago when people could borrow far beyond their means and dig themselves into serious debt), many of today's low-scoring Americans still have credit needs.

The sub-600 population includes a lot of people who have lost a home to foreclosure or had debts written off after losing a job, which means their scores will remain deflated for several years. For those Americans who've seen their credit score tank, securing a credit card may seem impossible, but it's not.

Here are some options:


Try the conventional route
The first step is to be honest with yourself, says Barry Paperno, consumer operations manager for credit scoring agency FICO. Don't even try to apply for cards that require "excellent" or even "good" credit. Look for cards that market to people with "fair" or even "poor" credit. If you apply to one and get turned down, though, don't keep trying. Multiple applications mean that multiple lenders are checking your credit, an activity which can lower your score even further. (One application probably won't hurt you, though.)

Look Into Getting a Secured Card

If you're turned down for a conventional credit card, Paperno says your next best bet is a secured card. FICO offers examples and information about some of these cards here. Secured cards work like this: You give them money for a deposit and they give you a line of credit equal to that amount less any fees they charge. It's kind of a raw deal in the sense that you're basically paying to borrow your own money, but if you can't get a credit card that lets you borrow a bank's money, a secured card might not be a bad idea for a couple of reasons: First, the FICO score formula doesn't distinguish between secured and unsecured cards. According to the scoring mechanism, you have a credit card, period. "There's no indication that it's secured or unsecured," says Paperno. This will, over time, help boost your score. He adds, though, "I would recommend people make sure they report to all three credit bureaus."

After waiting a period of time (generally at least a year) and paying your bills on time, secured card issuers will transition you to an unsecured card. They'll return your deposit and you'll be back in the world of conventional credit cards.

Piggyback on a Spouse or Parent's Card

Another option, Paperno says, is to get added as an authorized user onto the credit card of a spouse or parent who has good credit. (We've talked about this process here.) This gives you the benefit of that person's credit history with the card, but if they blow off a payment or two, your FICO score could take a hit as well.

Plead Your Case
Finally, there's an option that lets you explain your low score directly to lenders. It doesn't change your score, Paperno warns, but the process lets you add a 100-word statement to your credit report. This can be valuable if you lost a job or a had a medical emergency that hammered your score. There's information on the Federal Trade Commission website about how to do this here. Just be sure to keep it short and sweet, and definitely point out if you always had good credit up until your crisis. You may be able to induce a lender into taking a chance on you anyway.
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