How to find the best credit cards for bad credit

YOUR credit score plays an important role in getting you the best deals on credit cards, mortgages and more.

Luckily, if you have a poor rating, the best credit cards for bad credit can help improve it.

Credit building cards
A credit building card could help improve your credit score, but you need to use it in the right way
Getty – Contributor

What are 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 at making repayments.

One way they do this is by looking at your credit report.

This provides a history of your financial products and credit arrangements and whether you have ever missed payments or defaulted on a loan.

It will also show if you have any county court judgements (CCJs) or have been made bankrupt.

Missed payments, CCJs and bankruptcies can all lower your credit score, making it harder to get finance.

Additionally, your credit score may also be low if you don’t have a track record of repaying debt: such as if you have never had a credit card, if you have missed payments on other bills or are not on the electoral register.

You can rebuild and boost your score with a credit card for bad credit.

It is also known as a credit builder card.

What is the difference between bad credit and no credit?

Your credit rating can be low for two reasons.

You could have bad credit if you have missed payments or had CCJs or a bankruptcy.

Alternatively, you could have a limited history of taking credit out.

Having no credit can reduce your rating as there is little evidence of how well you can manage your debts.

In both cases, a credit builder card may be beneficial.

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 typically lower than other credit cards.

The idea is that you spend on the credit cards and make the full repayments each month to clear the balance.

Your credit limit may also increase once the provider is confident that you can continue making repayments.

Eventually this will build up a track record 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 for spending, clearing debts and earning rewards

What types of credit cards can I get with bad credit?

Borrowers with bad credit can still get the same type of credit cards 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 is offered to those with better credit ratings, 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 benefit of a credit building card is that you can restore and improve your chances of getting finance in the future.

This is because as long as you make repayments on time and stay within your limit, eventually your credit rating will improve.

You are more likely to be accepted for these sorts of cards compared with 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 could range from £100 to £1,000.

There are also higher charges if you miss payments, known as the annual percentage rate (APR).

The APR on a credit builder card can be as high as 60%, compared with around 20% usually.

You may be charged this if you miss a payment or if you only repay the minimum.

This could push you further into debt and missed payments can also reduce your credit rating further.

Some cards may also charge an annual fee.

Are too many credit cards bad for credit scores?

There is nothing wrong with having lots of credit cards as long as you can keep up with repayments.

There is a risk that the more you have, the higher the chance of falling behind on what you owe.

Lenders may also question why you need so much credit.

The main risks of having too many credit cards is that if you miss repayments your credit rating could be reduced.

This may make it harder to get finance elsewhere.

Additionally, making several applications at once and having rejections on file can also reduce your credit score.

What’s the easiest credit card to get approved for 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 boost your chances by doing a soft search that doesn’t show on your credit report before applying.

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 websites will also offer an eligibly calculator, so you can work out your chances of success.

How to cut the cost of your debt

IF you're in large amounts of debt it can be really worrying. Here are some tips from Citizens Advice on how you can take action.

Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money

Work out your budget – by writing down your income and taking away your essential bills such as food and transport
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs

Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker

Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)

Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them

Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay

Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further

Groups like Citizens Advice and National Debtline can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans

What credit cards build credit fast?

All credit cards will boost your credit rating as long as you keep up with repayments.

A credit builder card is the best way to start if you have a low rating as the balance is lower so should be more manageable.

But remember, with any type of credit card, there is always the risk of falling onto the pricey APR if you miss payments – and this will also damage your credit score.

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 lots of other debt, particularly if you have had problems repaying in the past.

If used responsibly, a credit card for bad credit can help if you have a lot of debt.

You can use a balance transfer to clear balances on old cards and repay credit card debt interest-free for a set period.

The interest-free period is likely to be a lot shorter for those with bad credit, compared with borrowers with high ratings.

Make sure you can clear as much of the debt as possible in the interest-free period though as the repayments will get a lot more expensive once the APR is added and you may then need to do another balance transfer.

A credit builder card should also improve your credit score, which should eventually make your eligible for longer interest-free balance transfer periods or a loan that could help manage your debts.

What credit cards can give you instant approval?

Application times may vary across providers as they may need to do ID checks and consider how reliable you are as a borrower.

Some credit card companies can give you an instant decision, but there is still a chance that they can say no and it may then be harder to get credit elsewhere.

Your best bet may be to do a soft-search that doesn’t show on your credit report, so you know the type of card you are likely to be approved for and don’t worry about how long the application will take.

Boosting your credit score will also improve your chances, so it may be worth waiting a bit longer until your rating is better.

How can I improve my credit score?

A credit builder card is just one way to build your credit score.

There are other steps which you take to help improve your rating:

  • Get on the electoral register – This proves who you are and where you live, meaning it’s easier to get credit if you’re on the list. Also check the electoral role for any errors. You can sign up by registering to vote.
  • Don’t make too many credit applications – Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
  • Always pay your bills – Late payments are also recorded in your file, so make sure you pay your monthly bills on time including utility and credit cards.
  • Pay down your debt – Try and cut down your existing debt before applying for new credit, as lenders may be reluctant to lend to you if you already a large amount of debt.

How should I manage my credit card?

Credit card companies make money out of interest charged on missed payments.

It can be tempting to just pay the minimum amount on your credit card bill but this may incur charges if you are not in an interest-free period.

Try to clear your credit card each month as this can boost your credit rating.

Setup a direct debit from your current account so this is done automatically.

Also, keep an eye on your balance so you don’t exceed it.

Some providers may let you set alerts so you can see when you are close to your limit.

Can I get declined a credit card for bad credit?

Credit card companies only have to offer the APR they are advertising to 51 per cent of applicants.

You could be in the other 49 per cent and get a higher rate or a rejection if the company thinks you are more of a risk due to your credit rating.

This may be because you have bad or no credit.

A provider may also reject you if you have been refused credit recently.

This is because successive applications and rejections are viewed negatively by banks and building societies and reduce your rating.

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 job details.

You can find credit cards for bad credit directly from a bank, building society or specialist card provider.

Alternatively, some comparison websites may let you compare credit cards to build credit in one place.

Alternatives to credit builder cards

If you want to improve your credit rating without resorting to a credit builder card, you could consider a pre-paid credit repair card.

These cards typically charge a monthly fee but are a good budgeting tool.

Alternatively, you might consider registering on the electoral roll, which helps build your credit score.

You can also show lenders that you can manage credit well by taking out a mobile phone contract or household utility bill and paying it in full and on time.


Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button