Everyone has made financial mistakes here and there. Maybe you forgot to pay the minimum balance on your credit card bill once or twice, or fell behind on the utilities one month. Such missteps may ding your credit, but they won't sound the alarm—so long as you don't let them become recurring bad habits. But those who consistently do things that damage their credit score may plunge into a hole that can take years to dig out of.
Bill Hardekopf, a credit expert with LowCards.com, says people with poor credit have to recognize how bad their situation has become and should be realistic about what it will take to rebuild their score. "It takes you a long time to develop a bad credit report, so you won't be able to rebuild it overnight," he says.
The first step to climbing the ladder of recovery is to be financially prudent, Hardekopf says. Request your free credit report from AnnualCreditReport.com and make sure there are no errors on your credit history. Then start to curb the harmful behaviors that affect your credit score the most: Pay your bills on time and don't overspend on your credit card. Beverly Harzog, an independent credit card expert and consumer advocate, says even the smallest hiccup will set you back. "If you're not vigilant at paying all your bills on time, you'll only make things worse," she says.
One of the best avenues to reclaim a healthy FICO score is to establish good credit through a secured credit card, which has a fixed credit limit and is linked to a savings account. With traditional unsecured credit cards, the limit is based on your credit standing, but on an unsecured card, the limit is equivalent to your deposit.
Gerri Detweiler, director of consumer education at Credit.com, says people with bad credit may be hesitant to open a new line of credit because of the problems they've had in the past. "They're afraid to dip their toes into the water again," she says. "They figure, 'As long as this negative information is on my credit report, there's not much I can do, so I'm going to wait until it drops off my credit report.' That's a huge mistake because one of the factors in your credit score is the average length of your account, as well as the age of your most recent credit account."
To help you nurse your credit back to health, here are six expert-recommended secured credit cards:
Navy Federal Credit Union nRewards Card. To be eligible, you must be in the military or related to someone who is, but if you can qualify, Harzog says this is one of the best cards for rebuilding credit. The card reports to the three major credit bureaus: Equifax, Experian, and TransUnion. (If a card issuer doesn't report to three bureaus, it won't affect your FICO score.) There is no annual fee and the annual percentage rate (APR) is a variable 8.9 percent, which is low for this category. It comes with a generous 25-day grace period on purchases. You also earn one point for every dollar spent through the rewards program.
Citi Secured MasterCard. Citi invests your deposit in an 18-month CD savings account instead of a standard savings account, so you'll earn 1.01 annual percentage yield (APY). "You won't earn a lot, but it's a nice concept," says Harzog. The annual fee is only $29 a year. It comes with a high 18.24 percent variable APR, so Harzog advises against carrying a balance.
One caveat: You can't apply for the card online; you have to go in-person to a Citi branch. "They want to be pretty strict about who can get the card," according to Harzog.
Capital One Secured MasterCard. The interest rate is on the high side at a variable 22.9 percent, but it has a low annual fee of $29. Detweiler points out that the bank supplies the cardholder with a credit monitoring tool, so he or she can easily keep track of their credit score.
Anisha Sekar, vice president of credit and debit products at NerdWallet, a credit card comparison website, likes that the bank allows you to make the deposit (at least $200) over the first 80 days after being approved. "It's helpful if making that $200 deposit is a big weight," Sekar says. You can also potentially earn credit-line increases based on your payment and credit history.
Wells Fargo Secured Card. The annual fee is just $25. However, it has a variable 18.99 percent APR, so try not to carry a balance, says Harzog. Your deposit can be anywhere from $300 to $10,000. If you use the card responsibly, you'll be considered for an unsecured credit card. "That's helpful because that's why people are doing this—they want to get an unsecured card," Harzog says.
US Bank Secured Visa Card. It has an affordable annual fee of $35. Similar to the Wells Fargo card, the bank offers an accelerated path toward an unsecured card. Depending on your credit behavior, you could qualify for an unsecured card in as little as 12 months. "It's a stepping stone to get a low-interest credit card," says Sekar.
Be aware the APR is high: 20.99 percent on purchases and 23.99 percent on cash advances.
The Platinum Zero Visa Card from Applied Bank. The big drawback is that this card comes with a $9.95 monthly maintenance fee ($119.40 annually), so the fees are going to sting. But Hardekopf says the Platinum Zero is ideal for someone who expects to carry a balance from month to month, since the bank charges zero percent interest on purchases. There's also no credit check required.
The bottom line: There is always light at the end of the tunnel. Says Sekar: "It's a long, hard slog, but there's no credit score that's beyond repair."