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If you have less than stellar credit, it can be difficult to qualify for the best credit cards – or any card at all. It is even more difficult if you fall into 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 hope of rebuilding your credit score, but these cards are often charged with extremely high interest rates and high fees to open and maintain your account.
the Visa® Total card is an example of a subprime card that has an annual rate of 34.99% and over $ 100 in account management fees each year. It doesn’t even take into account any missed payments you might incur.
In fact, deep subprime borrowers may incur $ 1,599 more interest on the average credit card balance of $ 6,194 while making monthly payments of $ 200 compared to Highly Preferred Borrowers (who have scores of 720 or higher).
In order to avoid the high costs of subprime cards, consider alternative options that allow you to create credit at low cost or at no cost.
- Secure card
- Become an authorized user
- Get credit for your monthly bills
Opening a secure card is one of the best choices for someone who wants to rebuild credit. A secured card is almost the same as an unsecured card in that you receive a credit limit and if you don’t pay your balance in full each month, you will have to pay interest. However, you must make a deposit, often $ 200, in order to receive a line of credit. The amount you deposit usually becomes your credit limit.
An exception is the Capital One® Secured Mastercard®, which ranks among the best secure cards. There are no annual fees and some of the lowest minimum security deposits of $ 49, $ 99 or $ 200, depending on your creditworthiness. You will receive a $ 200 credit limit even if your deposit is $ 49 or $ 99.
Although you are required to deposit a deposit to get a secure credit card, that money is not gone forever. Some issuers will allow you to switch to an unsecured card after establishing a history of paying your balance on time and in full each month. In other cases, after establishing a better credit score, you can apply for an unsecured card, then close your secured card and get your deposit back. This is one of the rare cases where it is possible to close your credit card.
A Authorized user is an additional cardholder on another person’s credit card account, whether it’s your partner, family member, or close friend. As an authorized user, you can recover their credit and establish or improve your score. 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 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 payments or account management – everything is left to the primary account holder. This makes becoming an authorized user a relatively low risk way to create credit.
Of course, you still want to make sure that you are using the card responsibly. If you will be using the Card to make purchases, you will need to make arrangements with the Cardholder to reimburse you for a portion of the balance each month.
Experian Boost is a free feature that allows you to link your bank accounts and get credit to pay eligible bills on time. Recently added Experian Netflix to its list of eligible bills, which also includes Internet, cable, gas, electricity and water bills.
On average, over 4 million Experian Boost users see an increase of more than 10 points in their FICO® 8 score, based on Experian data.
This feature is useful if you can’t qualify for a secure card (or 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. Late payments will not be shared with Experian Boost, but you should pay overdue invoices as soon as possible as your creditor may send negative information to the credit bureaus, which can adversely affect your credit score.
The Total Visa® and Capital One® Secured Mastercard® information was independently collected by CNBC and was not reviewed or provided by the card issuers prior to publication.
Editorial note: The opinions, analyzes, criticisms or recommendations expressed in this article are those of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.