Credit Cards For Bad Credit: Are They Good For Building Credit? (2024)

How You Can Use Credit Cards For Bad Credit To Improve Your Credit Score

A lot of people who have bad credit rebuild their credit using credit cards. Credit cards are a popular way to rebuild credit because they tend to be easier to get approved for than personal loans. There are also many types of credit cards these days that cater to people with bad credit.

Hard Inquiries vs Soft Inquiries

Building credit using a credit card requires that you…. well, apply for a credit card. But unfortunately applying for a lot of credit cards will have a negative impact on your credit score.

Most lenders use a hard inquiry when they pull your credit and determine whether or not to extend credit. A hard inquiry will actually have a negative impact on your credit score. The more hard inquiries you have, the lower your credit score.

Hard inquiries will impact your credit score for 1 year. But you will notice the biggest drop in the first 6 months. And they will drop off your credit report after 2 years.

That’s why we put together a list of lenders that use a soft inquiry, A soft inquiry doesn’t impact your credit score when the lender pulls it. Click here for a list of soft inquiry bad credit credit cards

How many credit cards with a $300 credit limit do you need?

A big problem with unsecured credit cards for bad credit is their low credit limits. One thing I see a lot from our credit repair clients is that they have 3 or 4 bad credit credit cards, all with very low limits. They THINK they have been doing a good job in building their credit, but they have failed to think about building comparable credit and diversifying their credit report.

Having one or 2 low credit limit cards while you build credit is to be expected. But no one needs more than 2 low credit limit cards.

A Better Credit Building Strategy

It’s better for you to work on those 2 low limit cards you have and in 6 months ask for a credit limit increase. THEN apply for another card once your credit limits have been updated.

Why?

Lenders will be willing to give you bigger initial limits if it looks like other lenders already trust you with a large credit limit and you have had that line of credit for a minimum of 6 months. If you do it this way, instead of being approved for another $300 or $500 credit card, your initial credit limit can be over $1000!

The importance of comparable credit

When you apply for a loan or credit card, your lender will pull your credit. They aren’t just looking for negative items. They are looking at your credit utilization, and your experience in managing different types of credit (ex. credit cards, installment loans, mortgages etc). And how much credit you have managed in the past.

If you are looking for a small loan. Comparable credit isn’t always a big problem. But if you approach a lender needing a $20,000 loan and the highest line of credit you have is $300. You will need a co-signer.

Before you ask for a credit limit increase

Normally, a credit card company will review an account once or twice a year and give you a credit line increase based on your payment history. If they haven’t, look at your payment history. If you have missed payments or paid late. They probably won’t automatically increase your credit limit.

If you have been late once or twice in a year. Call them and state your case. If it’s more than that, wait until you have at LEAST 6 months of on-time payments.

Will you be turned down if you ask and you have a lot of late payments?

Probably.

But if you have a good reason, you should call and state your case and the reasons behind your late payments. You may also want to write a letter (or email) to the department in charge of credit increases and state your case.

Tip: If you have a lot of late payments try to talk directly with someone at your credit card company that is in the credit department. If you only speak with customer service, you will not be speaking with a decision-maker.

One of their credit agents MAY be able to give you the increase if your reasons for late payment are GOOD. You may also want to offer to sign up for their automatic payments so they know that your payments will be on time from now on.