If you're new to credit or you're working on rebuilding your credit after receiving some negative marks, a credit card can be a great way to establish a positive credit history. As long as you use the card responsibly and pay your bill on time and in full every month, you can build credit without paying a dime in interest.
But some credit cards designed for people with poor or limited credit histories come with terrible features, some of which are borderline predatory.
If you're looking for a new credit card but feel like your options are limited because of your credit history, here are some signs that the card you're considering is a poor choice.
[Read: Best Rewards Credit Cards.]
The Worst Credit Card Features and Why You Should Avoid Them
In recent years, credit card issuers have offered better products for people with less-than-stellar credit. The top secured credit cards don't charge annual fees, and some offer reasonable interest rates and even rewards.
Additionally, fintech companies like Petal can be a good option for new-to-credit consumers who don't have a credit score but manage their money well.
But despite improvements in the industry for people hoping to build or rebuild credit, there are still many credit cards touting easy approval that can do more harm to your financial situation than good. Here are some signs that the card you're thinking about getting should be avoided.
You're getting bombarded with mail offers.Mail offers are a common practice in the credit card industry. "Creditors mail credit card offers to consumers because it's an effective way to drum up business," says Leslie Tayne, founder and debt settlement attorney at Tayne Law Group in Melville, New York. "Companies establish qualification criteria for the card, buy lists of consumer information and contact those that meet the baseline qualifications."
It's relatively normal to receive such offers, especially if your credit is in good shape. But if you have limited or poor credit and you're receiving multiple mail offers for the same card, do your research on the card before you apply.
The card has an annual fee with no perks or rewards. It's not uncommon for a credit card for poor or limited credit to charge an annual fee. But there are plenty of options available that don't charge an annual fee, so it's unnecessary to pay one unless you're getting something in return.
For example, some charge an annual fee in exchange for a lower interest rate. One card, the OpenSky Secured Visa Credit Card, charges an annual fee, but it also doesn't require a checking account, which can be beneficial for unbanked consumers.
But if a card is charging an annual fee and doesn't offer any kind of benefit, it's best to avoid that card.
The card charges other unnecessary fees. If you thought paying an annual fee without getting anything in return was bad, some cards charge monthly fees on top of their annual fees. You may even be charged a processing fee to open your account. These fees are unheard of among the vast majority of credit cards, even for those targeted to people with bad credit.
Before you apply for a credit card, make sure you read about its rates and fees. If you notice some of these unnecessary and predatory fees, apply somewhere else.
The APR is incredibly high. The average annual percentage rate on a credit card for bad credit ranges from 20.15% to 22.85%, according to U.S. News data. But some cards charge APRs upward of 30%, which is even higher than the penalty APR that many cards charge if you miss payments.
Card issuers do this because they assume that consumers with low credit scores won't shop around for cheaper alternatives, says Bruce Garner, co-founder and executive chairman of Card Curator, a credit card rewards optimization app. "The assumption is that anyone with bad credit will be overjoyed to receive an offer of any credit at any price," he adds.
That's not to say that any card that charges more than 22.85% is a poor choice, and you can avoid interest if you pay in full every month. But if the card's regular APR is close to or above 30%, it likely also has other features you'll want to avoid.
You're restricted to shopping via online catalogs. Retail credit cards can be a good way to build credit because they generally have low credit score requirements. One of the drawbacks of these cards, though, is that you can typically only use your card with one retailer. That's generally not a big deal if you can shop at the retailer often -- large merchants like Target, Walmart and Amazon all have store cards.
[Read: Best Store Credit Cards.]
But some credit cards for bad and limited credit only allow you to shop via online catalogs. This means you may not have as many opportunities to use the card, and using your card regularly is one of the best ways to build credit.
The card issuer doesn't report to all three credit bureaus. As you work on building or rebuilding your credit history, it's crucial to have credit accounts that report to all three credit bureaus.
"If a card doesn't report to a particular credit bureau, you won't get the boost to your score that you deserve for managing the account responsibly," says Tayne.
For example, if your card only reports to Equifax and Experian but you apply for a loan and the lender checks your TransUnion credit report, it'll be as if you haven't been using the card to build credit at all.
If you're applying for a card with a major bank or credit union, it's likely that the card issuer reports to all three credit bureaus. But if you're applying with a card issuer that's relatively small, double-check before you submit an application, so you can ensure that you get credit for your hard work.
You have to pay to increase your credit limit. Many cards for bad or limited credit offer low credit limits because it helps diminish the card issuer's exposure to risk. Over time, you may be able to request a credit line increase, and if you've managed your account well and your credit has improved, you may even get one.
But if the card issuer charges you a fee to increase your limit, you're better off looking somewhere else.
The card issuer makes it hard to find the fine print. Credit card issuers are required by law to provide information about the card's interest rates and fees. The Schumer box is a standardized disclosure that provides this information in a way that's easy to understand.
With most major credit card companies, it's relatively easy to find this information. But if you can't find a link anywhere on the card's landing page or you have to dig somewhere else on the card issuer's website to find the fine print, it could be that the company is intentionally making it difficult for you to get all the information you need before you apply.
Take Your Time to Research Credit Card Options Before You Apply
If your credit history is in poor shape -- or if it's nonexistent -- you may feel that your credit card options are extremely limited. But while you'll have to wait until your credit is in better condition to get some of the best credit cards available, there are several good credit cards for bad credit and limited credit.
If you've received an offer for a credit card or you're doing research online, take your time to ensure you get the card that's right for you. In particular, make sure you avoid cards with predatory terms, restrictive features and aggressive sales tactics.
Also, while putting up a security deposit to get approved for a secured credit card may not be ideal, it could be a good way to avoid costly unsecured cards.
"Since your credit line is limited to the amount of your security deposit, which is generally low," says Tayne, "you can't dig too big of a financial hole for yourself. And, once you demonstrate that you can handle the account, your bank may switch you to an unsecured card."
Finally, if you're new to credit and you're a college student, consider student credit cards as a way to build credit. These cards are specifically designed to help you build credit responsibly, and most charge no annual fee and even offer rewards on your everyday purchases.
[Read: Best Student Credit Cards.]
You may also consider other ways to build credit. "One of the simplest ways to rebuild poor credit is to become an authorized user on another credit card," says Garner.
Regardless of which card is right for you, the important thing is that you do your due diligence to avoid bad credit cards that can do more harm than good to your financial situation.