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If you have less-than-stellar credit, it can be hard to qualify for the best credit cards — or any card at all. It's even more difficult if you fall in the subprime (credit scores of 580 to 619) or deep subprime category (scores below 580).
You may consider signing up for a subprime credit card in the hopes of rebuilding your credit score, but these cards are often laden with extremely high interest rates and steep fees to open and maintain your account.
The Total Visa® Card is one example of a subprime card that has a 34.99% APR and over $100 in account management fees each year. That doesn't even factor in any missed payments you could incur.
In fact, deep subprime borrowers can incur $1,599 more interest on the average credit card balance of $6,194 while making $200 monthly payments compared to super-prime borrowers (who have scores of 720 or above).
In order to avoid the high costs of subprime cards, consider alternative options that allow you to build credit at low or no cost.
- Secured card
- Become an authorized user
- Get credit for monthly bills
Opening a secured card is one of the best choices for someone who wants to rebuild credit. A secured card is nearly identical to an unsecured card in that you receive a credit limit and if you don't pay your balance in full each month you will incur interest charges. However, you have to make a deposit, often $200, in order to receive a line of credit. The amount you deposit typically becomes your credit limit.
One exception is the Capital One® Secured Mastercard®, which ranks as one of CNBC Select's best secured cards. There's no annual fee and some of the lowest minimum security deposits of $49, $99 or $200, based on your creditworthiness. You'll receive a $200 credit limit even if your deposit is $49 or $99.
While you are required to put down a deposit to get a secured credit card, that money isn't gone forever. Some issuers will let you transition to an unsecured card after you establish a track record of paying your balance on time and in full each month. In other cases, after you establish a better credit score, you can apply for an unsecured card and then close your secured card and get your deposit back. This is one of the few instances when it's OK to close your credit card.
An authorized user is an additional cardholder on someone else's credit card account, whether it's your partner, a family member or a close friend. As an authorized user, you can piggyback off their credit and establish or improve your score. With that said, you should only become an authorized user on an account owned by someone with good (670-799) or excellent credit (800-850).
When you become an authorized user, you'll receive a credit card in your name that is linked to the primary cardholder's account. While you can use your card to make new purchases, you won't be held responsible for making any payments or managing the account — that's all left to the primary account holder. This makes becoming an authorized user a relatively low-risk way to build credit.
Of course, you still want to make sure you use the card responsibly. If you're going to be using the card to make purchases, you'll want to make arrangements with the cardholder to pay off you portion of the balance each month.
Experian Boost is a free feature that allows you to link your bank account(s) and get credit for paying eligible bills on time. Experian recently added Netflix to its list of eligible bills, which also includes internet, cable, gas, electric and water bills.
On average, Experian Boost's 4 million-plus users see a 10-plus-point increase in their FICO® Score 8, based on Experian data.
This feature is helpful if you can't qualify for a secured card (or you can't afford the deposit) and becoming an authorized user isn't an option. Plus, it's virtually risk-free since only positive bill payments are reported. Any late payments won't be shared with Experian Boost, however you should pay any overdue bills as soon as possible since your creditor can send negative information to the credit bureaus, which can hurt your credit score.
Information about the Total Visa® Card and Capital One® Secured Mastercard® has been collected independently by CNBC and has not been reviewed or provided by the issuers of the cards prior to publication.
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