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How to Bounce Back from a Subprime Credit Score

Subprime credit is a serious problem for many Americans, keeping them from homeownership and a variety of other life milestones. Many people don’t realize just how prevalent bad credit is in America. Here are some sobering stats about bad credit – and how to bounce back from a subprime credit score.

34.8% of Americans Have Bad Credit

According to Experian, one of the three big credit report bureaus, a whopping 34.8% of American adults have a subprime credit score. A subprime credit score is a score between 300 and 689 on the FICO scoring model, which 90% of lenders prefer to use to judge an applicant’s creditworthiness. This accounts for both “bad” credit scores (300 to 629) and “fair” credit scores (630 to 699).

Another 10% of Americans Have No Credit

Surprisingly, another study shows that 10% of American adults – or 26 million people – have no credit at all. According to the Consumer Financial Protection Bureau (CFPB), these people are known as “credit invisible.”

No credit doesn’t necessarily mean a person has never had credit. No credit score also does not mean no credit history. Rather, a person with no credit history experiences one or more of the following:

  • No credit accounts open during the last seven years
  • Limited credit history, but not enough to create a credit score
  • No credit experience at all

The Dangers of Subprime Credit Scores

Having a subprime credit score can impact many aspects of your day-to-day life. Those with bad credit receive significantly higher interest rates on everything from credit cards to auto loans to mortgages. Throughout a 30-year fixed mortgage, for example, the difference between a bad – and good – credit score can equate to hundreds of thousands of dollars in interest.

Bad credit also impacts things like apartment hunting and even job applications. This is because potential landlords and employers can view your credit report. If they see bad credit and a series of late payments, you might lose that new apartment or dream job.

People in certain socio-economic communities are at greater risk from both subprime credit and credit invisibility. Groups at the greatest risk include Hispanic and African American communities, as well as those in low-income areas.

Subprime Borrowers Don’t Have Much More Debt Than People with Excellent Credit

Despite the dangers that subprime credit presents from a borrowing standpoint, people with bad credit don’t have that much more debt than other Americans with good or excellent credit scores. The average credit card debt amount for a subprime borrower is approximately $6,500. The average credit card debt for a person with good credit is only slightly lower, at roughly $6,200. Subprime borrowers also owe less on installments like mortgages and personal loans, but these may reflect the difficulty in obtaining those loans for people with a poor credit score.

The Good News Is That Subprime Credit Is Reversible

While bad credit is a reality for a considerable percentage of Americans, it can change with patience, persistence, and hard work.

Here are five tips to quickly rebuild your credit score:

Check Your Credit Report

One of the simplest ways to begin improving your credit score is by signing up for a credit monitoring service. Using a monitoring service, like MyFICO or TransUnion, allows you to inspect your report and make sure everything it contains is accurate.

Dispute Negative Remarks and Late Payments

If you see anything incorrect on your report, make sure you dispute it as quickly as possible. Sometimes payments go unreported, leading to accounts ending up in collections. Proving these mistakes were not your fault can boost your credit score fast by removing missed payments and other damaging remarks.

Contact Lenders About Consolidation or Refinancing of Debt

Those struggling with existing debt should also consider applying for a debt consolidation loan to eliminate multiple monthly payments. Alternatively, discussing refinancing options with your existing lenders can be a painless way of reducing your monthly payments – just make sure to be nice!

Get Additional Credit Cards

Adding more credit might seem counter-intuitive, but another credit card can help increase your credit quickly. There are two types of credit cards for people with subprime credit: “fresh start” unsecured cards and secured credit cards.

Secured Cards for Bad Credit

Secured credit cards are an excellent option for those looking to repair their credit score. The reason for this is because they are easier to receive than most unsecured credit cards. A secured card requires a deposit, which acts as the “security” for the account. This security makes lenders more willing to provide credit for those with subprime credit scores – and those with no credit score at all.

Because the security deposit on these cards also acts as the credit line, secured cards make perfect sense for people that want the flexibility to determine their own credit limit. A larger credit limit, for instance, allows you to lower your credit utilization significantly, while also increasing your overall credit limit – both which will increase your credit score. Of course, not everyone can afford a large deposit, so secured cards also make sense for those who plan on making a much smaller deposit – often as low as $200.

Some secured cards, like the First Progress Platinum Prestige Mastercard®, feature an APR under 10%. This interest rate is exceptional for any credit card – at any credit score – so to find it on a credit builder card is impressive.

Related Article: What are the best secured cards of 2020?

Unsecured Credit Cards for Bad Credit

For those who either prefer not to opt with a secured card or who simply cannot afford the deposit requirement, there are also a variety of unsecured credit cards for people with bad credit scores.

One of the benefits of some unsecured cards is the ability to receive a credit limit increase with responsible use. Two cards that offer this perk, the Reflex Mastercard® and the First Access Solid Black VISA®, feature modest credit limits of $300, which the bank may increase in time.

Other popular options include the Indigo® Platinum Mastercard® and the Milestone® Gold Mastercard®  which offer pre-qualification, saving you the headache of potential rejection.

Milestone® Gold Mastercard®

No Credit Score Impact When You Apply

Milestone® Gold Mastercard®
  • Regular Purchase APR 24.9%
  • Cash Advance APR 29.9%
  • Annual Fee $35 to $99
  • Credit Needed Poor
  • Processing Network Mastercard
Best Benefits
  • Choose your custom card design
  • Free 24/7 online account access
  • Quick pre-qualification with no impact to credit score
  • Mastercard® Gold Benefits
Rates & Fees
  • Regular Purchase APR: 24.9%
  • Cash Advance APR: 29.9%
  • Cash Advance Transaction Fee: $0 during the first year; after first year, either $5 or 5% of the amount of transaction
  • Penalty APR: 29.9%
  • Annual Fee: $35 to $99
  • Foreign Transaction Fee: 1% of the transaction amount in U.S. dollars
  • Late Payment Penalty Fee: Up to $40
  • Return Payment Penalty Fee: Up to $40
  • Over Limit Penalty Fee: Up to $40

Indigo® Platinum Mastercard®

Choose Your Own Card Design

Indigo® Platinum Mastercard®
  • Regular Purchase APR 24.9%
  • Cash Advance APR 29.9%
  • Annual Fee $0 to $99 depending on the card issued
  • Credit Needed Poor
  • Processing Network Mastercard
Best Benefits
  • Great for demonstrating responsible use of credit
  • Short and easy-to-complete pre-qualification form
  • 24/7 mobile account access
  • Choose your card design free of charge
Rates & Fees
  • Regular Purchase APR: 24.9%
  • Cash Advance APR: 29.9%
  • Cash Advance Transaction Fee: $0 during the first year; after first year, either $5 or 5% of the amount of transaction
  • Penalty APR: 29.9%
  • Annual Fee: $0 to $99 depending on the card issued
  • Foreign Transaction Fee: 1% of the transaction amount in U.S. dollars
  • Late Payment Penalty Fee: Up to $40
  • Return Payment Penalty Fee: Up to $40
  • Over Limit Penalty Fee: Up to $40

For those struggling to find a credit card for their damaged credit score, both the Horizon Gold Card and Group One Platinum Card are worthwhile options that offer ease of acceptance. These cards both offer a $500 unsecured line of credit to the Horizon Outlet – an online shopping portal. The shop provides an impressive list of products, meaning the cards provide excellent value.

The beauty of all these cards, however, is that they report to the major credit bureaus every month. This means if you pay your balance and keep your credit utilization low, you can quickly raise your credit score by 10, 20, or even 30 points in as little as six months. That, in turn, can open the door to better credit options, lower interest rates, and reduced debts.

Related Article: 5 Tips to Manage Your Finances After Losing Your Job

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident rewards expert, covering all facets of the points game – especially travel, hotels, and airlines. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.