YOUR credit score plays an important role in getting the best deals on credit cards, mortgages, and more.
Fortunately, if you have a bad score, the best credit cards for bad credit can help you improve it.
A credit card can help improve your credit score, but you need to use it the right way Credit: Getty – Contributor
What are the credit cards for bad credit?
When you apply for a loan, mortgage, or credit card, the provider will want to know how reliable you are in making repayments.
One way to do this is to look at your credit report.
This provides a history of your financial products and credit agreements and indicates if you have ever missed payments or defaulted on a loan.
It will also show if you have County Court Judgments (CCJs) or if you have been declared bankrupt.
Missed payments, CCJs, and bankruptcies can all lower your credit score, making it harder to get financing.
Additionally, your credit rating may also be below if you have no history of paying debts: for example if you have never had a credit card, if you have missed payments on other invoices or if you are not registered on the electoral lists.
You can rebuild and increase your score with a credit card for bad credit.
It is also known as a builder’s credit card.
What is the difference between bad credit and no credit?
Your credit rating may be low for two reasons.
You might have bad credit if you’ve missed payments or had CCJs or bankruptcy.
Alternatively, you might have a limited credit withdrawal history.
Having no credit can lower your score because there is little evidence of your ability to manage your debts.
In both cases, a manufacturer’s credit card can be advantageous.
How do credit cards for bad credit work?
Like a traditional credit card, a credit card for bad credit gives you a spending limit.
It is generally lower than that of other credit cards.
The idea is that you spend on credit cards and make full repayments each month to clear the balance.
Your credit limit may also increase once the supplier is satisfied that you can continue to repay.
Eventually, this will create a history of reliable debt repayments on your credit report, which should boost your score and help you access better deals.
A credit card can be used to spend, settle debts and earn rewards
What types of credit cards can I get with bad credit?
Borrowers with bad credit can still get the same type of credit card as others.
This means you can get a credit card for bad credit that allows interest-free spending or balance transfers.
But the balance and interest-free period may not be as generous as what’s offered to people with better credit, and the annual percentage rate could be higher if you miss repayments.
What are the pros and cons of credit cards for bad credit?
The main advantage of a mortgage credit card is that you can restore and improve your chances of obtaining financing in the future.
Indeed, as long as you make repayments on time and stay within your limit, your credit rating will eventually improve.
You are more likely to be accepted for these types of cards compared to others if you have bad credit.
The downside is that the balance you get tends to be lower than on a standard credit card and can range from £100 to £1000.
There are also higher fees if you miss payments, known as the annual percentage rate (APR).
The APR of a credit card can reach 60%, compared to around 20% usually.
You may be charged if you miss a payment or only repay the minimum.
This could push you into more debt, and missed payments can also lower your credit score further.
Some cards may also charge an annual fee.
Are too many credit cards bad for credit scores?
There’s nothing wrong with having lots of credit cards as long as you can keep up with the repayments.
There is a risk that the more you have, the more likely you are to fall behind on what you owe.
Lenders may also wonder why you need so much credit.
The main risks of having too many credit cards are that if you don’t repay, your credit rating could be reduced.
This can make it more difficult to obtain financing elsewhere.
Additionally, applying multiple times and having rejections on file can also lower your credit score.
What is the easiest credit card to get approved with bad credit?
Credit card providers will have different criteria and your chances of approval will depend on your credit rating and repayment history.
You can increase your chances by doing an indirect search that doesn’t show up on your credit report before you apply.
This gives you an indication of the best credit cards for bad credit that you are most likely to be approved for.
Some providers and comparison sites also offer an eligibility calculator, so you can calculate your chances of success.
How to reduce the cost of your debt
IF you are in debt, it can be very worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance regularly – knowing your spending habits is the first step in managing your money
Calculate your budget – by writing down your income and taking out your essential bills such as food and transportation
. If you have money left over, plan what you will spend or save. If you don’t, look for ways to reduce your costs
Paying off more than the minimum – If you’re in credit card debt, try paying off more than your credit card’s minimum amount each month to lower your bill faster
Pay off your most expensive credit card sooner – If you have multiple credit cards and can’t pay them off in full each month, choose the most expensive card (the one with the highest interest rate)
Prioritize your debts – If you have several debts and cannot afford to pay them all, it is important to prioritize them
Your rent, mortgage, council tax, and energy bills must be paid first as the consequences can be more serious if you do not pay
Take advice – If you are struggling to pay your debts month after month, you must get advice as soon as possible before they pile up even more
Groups like Citizens Advice and National Debtline can help you prioritize and negotiate with your creditors to offer you more affordable repayment plans.
Which credit do cards build credit fast?
All credit cards will increase your credit rating as long as you meet repayments.
A builder credit card is the best way to start if you have a low rating because the balance is lower and therefore should be more manageable.
But remember, with any type of credit card, there’s always the risk of running into the expensive APR if you miss payments — and that will hurt your credit score too.
Will a credit card for bad credit help me if I have a lot of debt?
It can be harder to get traditional credit cards if you already have a lot of other debt, especially if you’ve had repayment issues in the past.
If used responsibly, a credit card for bad credit can help you if you have a lot of debt.
You can use a balance transfer to clear old card balances and pay off credit card debt without interest for a set period.
The interest-free period is likely to be much shorter for those with bad credit, compared to borrowers with high scores.
Make sure you can clear as much debt as possible during the interest-free period, as repayments will become much more expensive once the APR is added and you may then need to make another balance transfer.
A credit card should also improve your credit score, which should eventually qualify you for longer interest-free balance transfer periods or a loan that could help you manage your debts.
Which credit cards can give you instant approval?
Application times may vary from provider to provider as they may need to perform identity checks and assess your reliability as a borrower.
Some credit card companies may give you an instant decision, but there’s always a chance they can say no, and then it may be more difficult to get credit elsewhere.
Your best bet may be to do a soft search that doesn’t show up on your credit report, so you know the type of card you’re likely to be approved for, and don’t worry about how long it will take to apply.
Raising your credit score will also improve your chances, so it may be worth waiting a little longer until your rating improves.
How can I improve my credit rating?
A credit card is just one way to establish your credit score.
You can take other steps to improve your rating:
- Get on the Voter List – This proves who you are and where you live, which means it’s easier to get credit if you’re on the list. Also, check the electoral roll for any errors. You can register by registering to vote.
- Don’t over-apply for credit – Applying too much in a short period can be seen as a sign of financial distress – and every application will be logged in your file. Use a soft-search eligibility calculator to show the likelihood of you being accepted.
- Always pay your bills – Late payments are also logged on your record, so make sure you pay your monthly bills on time, including utilities and credit cards.
- Pay off your debt – Try to reduce your existing debt before applying for new credit, as lenders may be reluctant to lend to you if you already have significant debt.
How should I manage my credit card?
Credit card companies make money from interest charged on missed payments.
It can be tempting to only pay the minimum amount on your credit card bill, but that can incur charges if you’re not in an interest-free period.
Try to clear your credit card each month, as this can increase your credit rating.
Set up a direct debit from your current account so that it happens automatically.
Also, keep an eye on your balance so you don’t exceed it.
Some providers may allow you to set alerts so you can see when you’re close to your limit.
Can I be denied a credit card for bad credit?
Credit card companies only have to offer the APR they advertise to 51% of applicants.
You could be in the remaining 49% and get a higher rate of rejection if the company thinks you’re more at risk because of your credit score.
It may be because you have bad credit or no credit.
A supplier may also reject you if you have recently been denied credit.
Indeed, successive requests and refusals are perceived negatively by banks and mortgage companies and reduce your score.
How to get a credit card with bad credit
When you apply for a credit card for bad credit, the provider will want to see proof of your ID, your address for the past three years, recent bank statements, salary, and employment details.
You can find credit cards for bad credit directly from a bank, a building society, or a specialized card provider.
Alternatively, some comparison websites may allow you to compare credit cards to build credit all in one place.
Alternatives to credit cards
If you want to improve your credit rating without resorting to a credit card, you can consider a prepaid credit repair card.
These cards usually charge a monthly fee but are a good budgeting tool.
Alternatively, you can consider registering to vote, which helps build your credit score.
You can also show lenders that you can handle credit well by signing up for a cell phone contract or utility bill and paying it in full and on time.