Have a low credit score? Now may be the perfect time for a credit card

Rebuilding credit or building it from scratch might seem like a Catch-22. To raise your score, you need to show you can manage debt by using credit products such as credit cards. But it's tough to qualify for these products without having a good credit score. It's no wonder that a recent survey from Capital One Insights Center found that almost 70% of Americans believe that having too low of a credit score will prevent them from qualifying for any type of credit card.

Fortunately, nothing could be further from the truth. There's a wide variety of credit cards specifically designed for people with low credit scores, and responsible use can turn any of them into a powerful credit-building tool.

To build credit using a card, you need to show a consistent streak of good credit habits. "I think it goes back to consumers educating themselves on credit and… understanding what factors affect your credit," says Nikki Boehle, a credit expert and senior vice president of Resident-Link, formerly of Experian RentBureau. 

Your payment history (whether you pay your bills on time) and credit utilization (how much of your available credit you're using) affect your credit score the most. Here's how to use your card smartly to help with both.

• Don't wait for the due date. A single payment that's more than 30 days late can lower your score and will stay on your credit report for seven years. To avoid this, ensure you make at least the minimum payment before the due date.
• Set up autopay. Many credit card issuers allow you to set up autopay through their app or website. Doing so will make sure your bill will automatically be paid from your bank account when your card statement posts.
• Stay away from your limit. It may not seem fair, but your credit score can drop if you start using more than 30% of the credit available to you. If your credit limit is $3,000 (for example), you'll want your balance to be under $900.
• Make more than the minimum payment. It's not always possible, but paying the full balance of your credit card bill each billing cycle ensures that you'll never be late with a payment while also keeping your credit utilization low. If one lump sum at the end of each month feels too intimidating, you can try gradually paying off the balance a few times each week. If you can, you'll want to pay the entire statement amount in order to avoid high interest fees.

As you consistently apply these habits, your credit reports will demonstrate a pattern of responsible credit usage. The longer you sustain it, the higher your credit score may rise. 

It's true you may have a hard time qualifying for certain cards with bad or no credit. For example, rewards credit cards generally require good credit, as do 0% APR and balance transfer cards.

However, this doesn't mean you're completely out of luck.

"There's lots of options out there," Boehle says. "It just really comes down to understanding what those options are in what's best for you." 

Here are several types of credit cards available to credit rebuilders, as well as new credit users.

Secured credit cards

A secured credit card is identical to a regular, unsecured card in every way but one: You'll need to put down a deposit to apply. The deposit will become your credit line and act as collateral if you default on payments. This serves as an extra level of protection for lenders and allows them to approve cardholders with low credit scores. 

If you manage your secured card well, you may become eligible to upgrade it to an unsecured card. At this point, you'll receive your deposit back. 

The most popular secured credit cards also offer rewards. For instance, the Discover it® Secured Credit Card earns 2% cash back at gas stations and restaurants, on up to $1,000 in combined purchases each quarter. All other purchases earn 1% back. Plus, the issuer will match all the cash back you earn during your first year with the card.

More and more unsecured rewards cards have also been getting secured versions in recent years. For example, the Bank of America® Customized Cash Rewards Secured Credit Card offers 3% back in the category of your choice. You can pick from online shopping, gas, dining, travel, drug stores or home improvement and furnishings. You'll also earn 2% back at grocery stores and wholesale clubs. The bonus rewards are capped at $2,500 in combined spending per quarter. All other purchases earn 1% back.

Unsecured credit cards 

If you'd rather avoid putting down a deposit, look into unsecured credit cards for people with bad credit. Just note that these cards often come with high fees which, unlike a deposit, can't be refunded. Many of these fees are also buried in the fine print, so it's even more important to read the terms and conditions thoroughly before applying. 

Luckily, it's still possible to find a card in this category that will be easy on your wallet. Consider the Petal® 1 "No Annual Fee" Visa® Credit Card, which is designed for both credit rebuilders and those new to credit. The card doesn't require a security deposit and charges no annual fees. Additionally, you'll be able to earn between 2% and 10% cash back at select merchants.

Student credit cards

If you're enrolled in college, you have another card option for credit building. Student credit cards typically have more forgiving credit requirements and allow you to practice responsible card management and improve your credit score — often while earning rewards. Even better, most student cards come without an annual fee.

The Discover it® Student Cash Back is one of the top picks in this category. The card offers 5% cash back when you enroll in quarterly rotating categories, on up to $1,500 in spending each quarter (then 1%). All other purchases earn unlimited 1% cash back. Discover will also match all the cash back you earn during your first year with the card. 

Another excellent option is the Capital One SavorOne Student Cash Rewards Credit Card (see rates and fees). You'll earn 5% cash back on hotels and rental cars booked through Capital One Travel, 3% cash back on dining, entertainment, select streaming services and at grocery stores (excluding superstores like Walmart® and Target®) and 1% cash back on everything else. On top of that, you can get 10% cash back on Uber and Uber Eats purchases, as well as complimentary Uber One membership statement credits through Nov. 14, 2024. 

You may need a good credit score to qualify for the most appealing cards in the market, but even people with low or non-existent scores can find good cards. A credit card can be an invaluable credit-building tool that, when used responsibly, can improve your credit score. With time and patience, you should see that score climb higher and be able to qualify for the best cards in the market.

For rates and fees of the Discover it® Secured Credit Card, click here.

For rates and fees of the Discover it® Student Cash Back, click here.