Your credit score is about more than just whether or not you qualify for finance or better interest rates. It also determines things like whether you can rent a property or get a decent insurance rate. Lenders and others who may use your credit score to determine whether they can provide you with a service will access your information through one of the credit bureaus.
Credit bureaus assess your credit history and use your repayment history, defaults, number of credit products, and use of credit to generate a credit score. A bad credit score is when you don't have enough credit history or the credit history you have is problematic. The bad credit scores for the major bureaus are:
- Fair Isaac Corporation (FICO): Below 620
- Equifax: 300 to 579
- TransUnion: 300 to 600
- VantageScore: 300 to 600
Luckily, when your credit rating falls into the bad credit range, there are still credit card options for poor credit available, such as secured credit cards and unsecured credit cards specifically designed for those with low credit scores. Secured credit cards can help you rebuild your score, but require a deposit to minimize the lending risk for the lender. But if you don't have the money for a security deposit, you may want to consider an unsecured card that offers guaranteed approval with bad credit instead.
Guaranteed approval cardsoffer access to credit that may not have existed before, but they can be more pricey and may not offer all the rewards and benefits that other credit cards do. Also, it's important to remember that the guarantee is no real guarantee, as lenders can still decline a pre-approved credit card application.
Still, before signing up for aguaranteed approval card, it's important to compare your options. Pre-approvedcardsare designed to help you improve your score but can lead to an even worse score if not managed well.
How "guaranteed approval" cards work
Guaranteed approval credit cards are a misnomer, as no lender can guarantee approval of a loan due to regulatory restrictions. Some form of assessment or pre-assessment needs to take place before you receive approval on your credit card application.
That said, many lenders offer relaxed lending terms on some products or when clients meet certain minimum criteria. For instance, when banks pre-approve your credit card based on your history with them.
It's worth knowing that even when this happens, the guaranteed approval credit card can still get declined if your situation changes, like income details or credit history.
Some conditions that lenders may waive when extending credit in the form of guaranteed approval credit cards include:
- No deposit required
- Low credit amounts ($500, $1,000, $2,000 or $5,000)
- No credit checks or a soft credit check
When a lender performs a soft credit or soft pull check, they might use an internal system to determine whether they can extend credit to you. A soft pull doesn't affect your credit score, but lenders can still refuse credit based on the soft pull results. Providers may access a soft check to view your credit history, pre-qualify you for credit, pre-qualify insurance quotes, perform employment verification, and view utility bill payments.
Conversely, a hard credit check or hard pull shows up on your credit report and can temporarily drop your score by up to five points and for it to bounce back can take anywhere from a few months up to two years.
While the temptation is high to go with any institution that offers credit, especially if you're cash-strapped and you have a bad credit report, it's important to consider a few factors that may impact the way you use credit in the future.
- Cost —Higher risk means higher costs, and when lenders don't use your full credit history to determine whether you qualify for finance, they may increase the lending rate and fees to mitigate some of this risk. Keep an eye out for monthly service fees, annual fees, high interest rates, and transaction fees.
- Benefits —Some pre-approved cards offer great benefits such as cashback, rewards, and no interest for a certain period.
- Credit score —While the credit score may not have been used to determine approval of the cards, the use of the credit card can impact your credit score going forward. It's important to pay your card balance on time, stay within the credit limit, and keep your utilization rate low.
Recommended "guaranteed approval" cards for 2024
While no credit card can offer 100% guaranteed approval, some credit cards have fewer hurdles to navigate when applying. Some of the most popular options in this category include:
Capital One Platinum Credit Card
According to Capital One, if you're pre-approved for the Capital One Platinum Credit Card, applying for the card poses no risk to your credit score. This is because the lender performs a soft check during the application process.
The benefits include:
- The opportunity to build your credit — When used right, this card can help you build your credit score. It doesn't affect your credit score when you apply application, even if you're declined upfront.
- Insurance — Fraud liability insurance protects you from unauthorized purchases.
- 0% interest — When you settle your balance in full every month by the required due date, you don't pay any interest.
- No annual fee — You don't have an annual fee or any hidden fees to worry about.
Some of the drawbacks to consider include:
- Fair credit — While you don't need a stellar credit score to apply, Capital One still requires you to have a fair credit score. This means if you've missed a few payments on loans in recent months, you may not qualify.
- Interest rate — The interest rate on this card is a variable rate pegged slightly higher than the average rate. The only way to avoid paying this interest rate is by paying off your balance every month in full.
- No rewards or benefits — It's a straightforward credit card without any added benefits to sweeten the deal.
Mission Lane Credit Card
Mission Lane uses its Mission Lane Visa Credit Card to reach those who are "left behind by traditional finance companies." As with many of the cards in this category, applicants can apply for pre-qualification without affecting their credit scores. The application process is simple:
- Complete the online form on Mission Lane's site
- View the card terms
- Accept the offer
Information that applicants need to complete on the online form includes:
- Personal information, such as full legal name, social security number, and address
- Basic financial information
- Contact information
If a pre-qualified application is approved, applicants can then choose to go ahead and apply for a credit card. This step of the process does require a hard credit check, which may affect an applicant's credit score.
The benefits include:
- Pre-qualification — Pre-qualification can give you a general idea of the credit available to you based on basic financial information.
- Simple application — These applications can take place in a few minutes and you'll have a response almost immediately.
The drawbacks include:
- Limited information — Mission Lane doesn't disclose costs and rates upfront, which means you have to go through the application process first to find out what you'll pay in interest and fees.
- Pre-qualification — The application you complete on the website is just to see whether you qualify for a credit card. It doesn't guarantee that you'll pass the hard credit check.
Upgrade Cash Rewards Visa
The Upgrade Cash Rewards Visa is a strong contender if you're looking for a card that offers pre-approvals for cards over the $5,000 credit limit normally offered on pre-approved credit cards. You can check whether there's an offer for you without affecting your credit score.
Some of the benefits include:
- Higher credit limits — You can apply for limits between $500 and $25,000, which is much higher than many other providers are willing to pre-approve.
- Additional rewards and benefits — There's a signup bonus of $200 when you also open a Rewards Checking Plus account and perform three transactions with the debit card. You also get 1.5% unlimited cash back on purchases. Some purchases may also qualify for 10% cash back through Upgrade Shopping by using Dosh for online purchases or in-store.
- No annual fee
Some of the drawbacks include:
- Fees not disclosed upfront — Although there's no annual fee, other fees may apply. You'll have to search for the fees, as they're not disclosed upfront.
Prosper Card
You have immediate access to 50% of your approval rate with the Prosper Credit Card, which is perfect if you need access to credit fast, such as for an online purchase. The other 50% becomes available once you've received the card. To check if you qualify, they use a soft credit check.
Other benefits include:
- No annual fee — There's no annual fee for the first year if you pay through Autopay. If not, a fee of $39 per year applies.
- No ATM withdrawal fees — No fees apply when you use an ATM for withdrawals. However, third-party fees may apply.
- Financial education — Prosper offers its clients an extensive library of free courses and resources for financial literacy.
- Automatic credit review — Good credit card behavior, such as paying your card in full every month, keeping your credit usage percentage low, and paying your card on time, might lead to regular limit increases without further applications.
Drawbacks include:
- Annual fee — The annual fee of $39 per year kicks in from year two.
- Limits — The maximum limit is fairly low at $5,000.
Bad credit? "Guaranteed approval" cards might help
Having a low credit score doesn't automatically exclude you from applying for an unsecured credit card. Some lenders use an internal scoring method to extend credit to their customers, including those with bad credit, but it may come with higher costs, lower limits, and limited access to benefits and rewards. Overall, remember responsible credit card use is essential to ensure these cards help you improve your credit score over time.
