There are lots of reasons why it's good to have a credit card — building credit is a big one — but not everyone can qualify for the best cards on the market. When you've got poor or fair credit, it's less likely you'll be able to take advantage of a card that offers rewards programs so you can earn cash back.
But there's good news for people who are looking for a cash-back card that can also help them build their credit history. CNBC Select ranked the best credit cards for fair and average credit and found a card that offers 1% cash back and charges no fees whatsoever.
Below, we take a look at the Petal® Visa® Credit Card and break down why it is the best credit card to apply for if you have fair or average credit and don't want to pay any fees. (See our methodology for more information on how we choose the best cards.)
With the Petal Visa Credit Card, issued by WebBank Member FDIC, cardholders don't have to pay for an annual fee, nor any late payment fees or foreign transaction fees if they travel outside the U.S.
Compared to other cards for fair or average credit, such as secured credit cards, Petal also does not require any security deposits and the credit limits range from $500 up to $10,000, depending on your creditworthiness. Interested applicants will need to have at least one active bank account to link to their application.
Instead of just looking at your credit history when you apply, WebBank will also consider your bank statements and other financial data to determine your eligibility for the Petal Visa Credit Card. The bank looks at your credit score if you have one, but in case it's in the fair or poor range, but it also reviews your bank statements to see confirm your earnings and history of paying bills on time.
And if you have no credit at all, that's fine. The Petal Visa Credit Card ranked as the overall top credit card for building your credit because you can apply when you're just starting out, as long as you have a bank account.
The card's rewards program may motivate you to make on-time payments as well (which helps boost your credit score). Cardholders earn 1% cash back on eligible purchases and 1.5% after making 12 on-time monthly payments.
Fair and average credit scores can vary depending on the credit scoring model used and the credit bureau (Experian, Equifax or TransUnion) that pulls the score. The two most common types of credit scoring models are FICO and VantageScore.
Using estimates from Experian, below are the credit score ranges for both models. You'll notice that the fair credit scores are similar, with FICO giving a greater range.
It can seem overwhelming to navigate trying to raise your credit score, but it's worth your time and effort. A good or excellent credit score will give you access to lower APRs, better loan products and the best credit cards on the market.
The Citi® Double Cash Card, for example, offers 2% cash back on all your purchases (1% when you buy and 1% when you pay your balance in full). Other cards offer generous cash welcome bonus once you reach your spending minimum, like the Capital One® Quicksilver® Cash Rewards Credit Card, which gives you a $150 bonus after you spend $500 in the first three months from account opening.
But cards like these require applicants to have a good or excellent credit score to qualify. In order to get a score in the 700 to 850 range, you'll need to start small and that's where a card like Petal Visa Credit Card comes in handy. If you're careful with how you use the card — spending within your means, paying your bill on time and in full each month — you'll be on your way toward improving your credit score so you can eventually qualify for the best credit cards.
1% cash back on eligible purchases and 1.5% after you make 12 on-time monthly payments
14.49% to 25.49% variable
See our methodology, terms apply.
To determine which credit cards offer the best value for people with average or fair credit, CNBC Select analyzed the most popular credit cards offered by the biggest banks, financial companies, and credit unions that we determined have average or fair credit score requirements.
We compared each card on a range of features, including: annual fee, rewards program, introductory and standard APR, balance transfer fee, welcome bonuses and foreign transaction fees, as well as factors such as required credit and customer reviews when available.
CNBC Select teamed up with location intelligence firm Esri. The company's data development team provided the most up-to-date and comprehensive consumer spending data based on the 2019 Consumer Expenditure Surveys from the Bureau of Labor Statistics. You can read more about their methodology here.
Esri's data team created a sample annual budget of approximately $22,126 in retail spending. The budget includes six main categories: groceries ($5,174), gas ($2,218), dining out ($3,675), travel ($2,244), utilities ($4,862) and general purchases ($3,953). General purchases include items such as housekeeping supplies, clothing, personal care products, prescription drugs and vitamins, and other vehicle expenses.
CNBC Select used this budget to estimate how much the average consumer would save over the course of a year, two years and five years, assuming they would attempt to maximize their rewards potential by earning all welcome bonuses offered and using the card for all applicable purchases. All rewards total estimations are net the annual fee.
It's important to note the value of a point or mile varies from card to card and based on how you redeem them. When we calculated the estimated returns, we assumed that cardholders are redeeming points/miles for a typical maximum value of 1 cent per point or mile. (Extreme optimizers might be able to achieve more value.)
While the five-year estimates we've included are derived from a budget similar to the average American's spending, you may earn a higher or lower return depending on your shopping habits.
When analyzing student cards and credit-building cards, we did not calculate the estimated rewards a cardholder could earn. When you're a student or building (or rebuilding) your credit history, your focus should be on developing good financial habits, such as paying your balance on time and in full, and not optimizing the points you can earn.
Information about the Petal® Visa® Credit Card, Citi® Double Cash Card, and Capital One® Quicksilver® Cash Rewards Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.