Updated on March 23, 2018

How do you earn lots of miles and points when you have bad or no credit?

Its really hard because you can't take advantage of huge sign up bonuses that credit cards offer.  This is a question I've heard from some friends and family- from recent college grads to older family members.

Problem:

You have bad credit or no credit. Maybe you fell behind on some debt.  Maybe you never had a credit card.  Forgot about one of your many school loans? Whatever your reason, you can't get approved for a credit card with the big bonuses.  Its also really hard to book a hotel, car rental, flight, etc., without a credit card.  Debit cards can work, but I never use mine to pay because once you charge something, the money gets removed from your bank account.  If a charge is incorrect or you need to dispute a charge, you are fighting to have money put back into your bank account.  In addition, most credit cards offer rewards (points, miles, cash back) and many free insurances including 60-90 day return protection, extended warranties, and car rental damage coverage.  With most debit cards, you're missing out on those extras.

The situation is sometimes frustrating when I try to get older family members to sign up for a great offer (they want to travel free too!) but some are part of an older generation/culture where cash is king and credit cards were rarely, if ever, used.  They have good reasons: without credit cards, its harder to get into debt.  If you don't have the cash you don't buy it – a way that I do agree with very much.  Without a credit history, the banks have no idea who you are or if you are going to pay them back.  As a result, you can't sign up for the latest big bonus offer. I did this research for an in-law who was in this situation.

Solution:

How to build up credit score: Its hard but not impossible.  It will, however, take some time to build/rebuild your credit history to a point where you can apply for a regular credit card.

Here's how:

1. Get a secured credit card.  What is it and how does it work?  You deposit money with the bank and this becomes your credit limit.  If you  stop paying, the bank can just take your deposit.  I've researched a few and created a list of cards (below) which will help you rebuild your credit.  As you make payments on time, this will get reported to the credit agencies and your score will improve.
2. Track your credit score.  Some of these cards will provide your credit score but you can also find out for free using CreditKarma.com, Credit.com, or Quizzle.com.
3. Use your new card and pay it off in full every month!  Only charge an amount you can pay in full, even if its $10-20.  The interest rates they charge are high so don't leave a balance.
4. Keep using/paying off the card for 6-12 months.  After your credit score rises enough, you will be able to apply for a regular non secured credit card (one that gives you lots of miles or points).

Warning: Under no circumstances do I recommend keeping a balance on these cards due to the high interest rates.

Below is a list of secure credit cards that should work for you if you have bad or no credit.  Be sure to read the details on the application to make sure you understand the fees involved – I've summarized the key details here:

List of Secure Credit Cards

Additional offers can be found here: Credit Card Directory.

There were many cards which didn't make the list because they just appeared to be scams to rip people off with high fees.  While most cards for people with bad/no credit will have fees involved, these seem to be the best ones.  Beware of prepaid cards – those usually do not report your payments to the credit agencies, which is what you need to improve your credit score.  If you find other good ones, please suggest them in the comments.

• First choice:  The Harley-Davidson Visa Secure Card by US Bank.  Why?  No fee and only $300 minimum deposit. The interest rate is rather high but since you won't be keeping a balance on the card (right?!), the interest rate isn't my main focus.  The card also has a reward program.
• Second choice:  The Navy Federal nRewards Secured Card.  Why?  No fee.  The downside here is you must be affiliated with the military and the minimum deposit is on the high end.  If you are part of the military, this is a good choice.  The interest rates are lower, but you should not be keeping a balance or paying interest.
• Third choice: If the first two don't work for you, take a look at the other offers.  The DCU Visa Platinum Secured Credit Card is a good option if you can handle the $500 minimum deposit.  If you're not a member of one of their participating organizations, you can join one for $10.  There are 3 airline secure cards offered by US Bank with a $300 minimum and $0 fee the first year (then $25/annual fee).  These 3 will also earn you 5k bonus miles, however, you will probably not be able to earn enough to use them.  If you want to stick with a $250 minimum deposit, the UNITY or USAA cards could be good, however they have higher fees ($39 for UNITY) or require a 2 year CD (with USAA).  I don’t like the idea of locking up my deposit for 2 years but in return for doing so, you get one of the lowest interest rates and an opportunity to get an American Express card which usually requires a higher credit score.  Anyone doing this should plan to not carry a balance so the interest rate should not matter.

Summary

If you have bad or no credit and you want to take advantage of the huge point bonuses like the AA Exec 100k Bonus Miles promotion, you need to boost your credit score.  An easy way to do this is by using a secure credit card.  I've listed a few good options above.  Deposit some money to establish your credit limit, spend and pay on time.  After your credit score improves in 6-12 months you should be able to apply for a regular credit card.  In the meantime, read my other posts to learn about more ways to travel free.

What do you think?  If I missed any of your favorite cards let me know.

RELATED POSTS

• 10 questions before getting a secured credit card
• NerdWallet’s Best Secured Credit Cards