If you have bad credit, getting a credit card is difficult, but not always impossible. Once you get your finances under control, your goal is to build your way to a regular credit card issued by a bank. There are several ways to do this, from applying for a card from a small retailer or gasoline company to getting a secured credit card.

Is Having a Credit Card a Good Idea?

Before you try to get a new credit card, be honest about whether you will use it wisely. Credit cards can be dangerous to your financial well-being if you use them to buy things you cannot afford. If misusing credit cards is what caused your credit rating to sink in the first place, then perhaps it would be wise to steer clear of credit cards for the time being. (To learn about using your cards responsibly, see Avoiding Credit Card Debt.)

However, there are several very good reasons to have a credit card:

• For an emergency. A credit card can be a lifesaver if you have to pay for emergency expenses that go beyond your savings—for example, repairing a leaky roof or paying for a necessary medical procedure. Charge the expense, and then pay it off as quickly as possible.
• To build credit. A good way to develop a positive credit history is to obtain a credit card and make timely payments. But beware: If you can't pay the balance off each month, don't use it. (To learn more about building credit, see Ways to Rebuild Your Credit.)
• To get airline miles or other "points." If you pay your credit card balance off each month, you can get airline miles or points towards other goods and services for free (assuming your card does not have an annual fee).
• To reserve hotel rooms or rental cars. Many hotels, car rental companies, and other vacation amenities require a credit card in order to make a reservation.

Steps to Getting a Credit Card

If you can't get a credit card right away, take steps to build credit. In this way, you can work your way towards a credit card:

Open bank deposit accounts. Creditors look for bank accounts as a sign of stability and proof that you can pay your bills. In fact, most credit card applications require a checking account number.

Start with a small retail store or gasoline company card. These are often the easiest cards to get. If you get a card, charge items, and pay the bill on time. This will start building a positive credit history for other credit card holders to look at.

Apply for a bank credit card with a low credit line. Next, apply for a regular bank credit card, like Visa or MasterCard, with a low credit line. At first, you might only qualify for a card with high interest rates and a high annual fee. If you use your card responsibly, after a year you can apply for an increase in your credit line and a decrease in your interest rate and annual fee. Or, you can apply for another card that has better terms. (To learn more about credit card terms, see Choosing a Credit Card: What You Need to Know.)

Your Credit Card Application

When you are ready to apply for a credit card, follow these tips to increase the chance that your application will be accepted.

Be consistent with the name you use. Either use your middle initial always or never. Always use your generation (Jr., Sr., II, and so on).

Be honest, but appear sympathetic. Portray yourself in the best light. If your credit troubles were due to a job loss, illness or death in the family, recent divorce, or new child support obligation, be sure to mention this on the application.

Apply for credit when you are most likely to get it. If possible, apply for a new credit card when you are working, have lived at the same address for at least one year, and when you don't have an unusually high number of inquiries on your credit report in the last two years. Creditors view too many inquiries as a sign that you are desperate or preparing to commit fraud. (To learn more about your credit report, see Cleaning Up Your Credit Report: An Overview.)

Apply for credit where you've done business. If your phone company, insurance company, or bank offers credit cards, try them first. If you have a good payment history or good relationship with the business, it will be more likely to give you the card.

Secured Credit Cards and Cosigned Credit Cards—If All Else Fails

If all else fails, consider getting a secured credit card. If you choose carefully, a secured card can help build positive credit history. But not always—so be sure to shop around, ask questions, and check the terms. However, even if the card doesn't help build credit, at least you'll have that piece of plastic if you need to rent a hotel room or pay for a small emergency.

Secured Credit Cards

To get a secured credit card, you open and maintain a savings account which serves as security for your line of credit. If you fail to pay your credit card debt, the bank uses the money in your account to cover the charges.

Use your secured credit card to make small purchases and pay the balance off each month. If you pay on time, it usually helps build credit. Later on, you can apply for an unsecured card.

Here are some things to keep in mind when shopping for a secured credit card.

Secured credit cards are expensive. Secured credit cards often come with hefty application and processing fees, annual fees, and high interest rates.

Check for a grace period. Some secured credit cards eliminate the grace period so that interest on your balance begins to accrue on the date you make a charge. Without a grace period, you pay interest even if you pay off the balance in full each month.

Get a card that will establish a credit history. Some creditors don't place much weight on credit history established by a secured card. And others, especially smaller issuers, don't report to the three major credit bureaus. Ask the issuer if it reports to the credit bureaus—most major banks do.

Look for a card with a conversion option. Some secured cards allow you to convert to a regular credit card after several months or a year.

More Information

For more information on credit cards, your credit history, and how to get out of debt, get Solve Your Money Troubles: Strategies to Get Out of Debt and Stay That Way, by Amy Loftsgordon and Cara O'Neill (Nolo).

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