Q: Dear CreditCardGuru, I have almost no credit history and the few things on my record are not the best (have some bad debts charged off from a medical bill). For someone in my shoes, is there a low credit limit card that I would have a better chance at getting approved for?
A: Well first off I should say that as a general rule of thumb, if you apply for a card with no/bad credit and end up getting approved, without a doubt you will have a low limit to start out with (on all cards). Probably between $500 to $2,000 but in today’s post-recession era, expect more like $500 to $900. This range is based on feedback posted on the forum.
Which cards fall under this category?
You won’t see any bank advertising low-limit credit cards. By that, I mean they won’t be labeling them that way… saying “low limit” isn’t exactly considered an attractive selling point, is it? Though you will find them advertised/categorized under different labels such as:
- Student cards
- Fair credit
- Secured credit cards
- Unsecured cards for rebuilding credit
All of these are essentially low-limit credit cards for bad credit or no credit, but for marketing purposes banks feel it sounds better to use the above labels rather than calling them “low limit.”
Which type is best for you?
I ranked the list above from most to least attractive, with the best type being at the top.
The reason I placed student cards at the top was because they rarely charge an annual fee and are marketed to those with no credit history. Of course the catch is that you must be a college student to qualify (and you often have to prove your student status to the bank). Here are some good ones for students.
Moving on, cards for fair credit scores are typically for those that have a credit history, but with blemishes. For example, if you have a debt that was charged off to collects during the last one or two years, you would probably fall into this category. Here are some good ones to consider.
With secured credit cards you have to pay a security deposit and that amount becomes your line of credit. Because of this, anyone can get them. The drawback of course is that you have to pony up a deposit and there may be annual or monthly fees involved.
Despite the drawbacks, in my opinion secured isn’t a bad route to go. Secured cards issued by major banks generally report to all three major credit bureaus. Once your credit scores get high enough, the issuer might even “graduate” you to a regular unsecured product.
There’s also another option to consider…
Over the past couple years, the industry trend seems to be doling out credit cards with a low limit, rather than flat out denying an applicant that has fair credit. Even though cards like the Freedom from Chase are considered mid-tier cards, a number of people on the forum with new or semi-bad credit history have reported getting approved anyway, but instead of getting an average credit limit they are given a very low limit.
If you do decide to try and apply for a entry-mid level to mid-level card like the two mentioned above, please remember that a credit inquiry is made any time you apply for a credit card. Having too many inquiries on your credit history is a bad thing, so you don’t want to go overboard and start applying for tons of cards when your chances for approval are a long shot to begin with. If it were me, I wouldn’t trying applying for more than one or two for this reason.
Updated June 2014