Getting a credit card when you have a bad credit rating

Enjoy the convenience of using a credit card

Estimates vary as to the actual number of credit card applications which get turned down, but what is evident is the preponderance of credit card providers who continue to play tough with people who have even the slightest stain on their credit record or simply have no credit history at all. For many, the convenience of a credit card seems out of reach as they are excluded by mainstream card issuers because of their bad credit history. But it doesn’t have to be that way. If you’ve been turned down elsewhere, don’t get too despondent as there are credit cards suitable for people with bad credit and these cards are designed to give you the opportunity to rebuild your tainted credit history.

Avoid the scattergun approach

If you know you have a poor credit rating and are looking for a credit card, there are plenty of providers out there who may be willing to see past your previous financial blunders and offer you a credit card. Some credit cards are designed for people with spotless credit histories and pristine credit scores, these are usually those offering the lowest interest rates and most attractive introductory deals; however, applying for one of these cards is likely to be futile. Others deals are specifically aimed at people with low credit scores, so you can save yourself a lot of time and hassle by applying only for cards which are more suited to your credit profile.

The catch with these ‘credit builder’ deals is that you’ll have to pay a premium for the luxury of being able to splash the plastic. Furthermore, you will invariably start with a credit limit that is significantly lower than the mainstream cards. While you are not guaranteed to be accepted for one of these cards, your chances are going to be considerably better than if you were to indiscriminately apply to providers who only want customers with high credit scores. The key is to concentrate your efforts with those providers who are specifically targeting customers that match your credit profile.

Credit builder

If you have little or no history of borrowing, lenders will find it difficult to assess risk. James Jones, head of consumer affairs at credit reference agency Experian, commented: “Lenders want to see how much of a risk you might be in terms of meeting your repayments. Not having enough information could itself make you riskier”. If you are looking to establish a record of borrowing, you can apply for a credit builder credit card, which are tailored for people with limited or bad credit history.

What criteria does a card company use to determine whether they will accept my application?

When you apply for a credit card, the lender will undertake a credit check with a credit reference agency. If it gets wind of any information indicating that you may pose it a risk in terms of paying back anything you borrow, it may refuse to put you onto its books. A credit provider may reject you for something from up to six years ago.

Credit checking is where the credit card provider looks at your credit file to judge your suitability. The information on your file can range from previous credit cards and store cards to a book club you joined and mobile phone contracts. It also contains information about financial applications you have made, even if you didn’t take the product out.

Your file includes details such as whether your payments are up to date and your credit limits. It highlights any arrears and shows the last 12 months of payments, illustrating if any were made late. If something is amiss on your credit file this could be enough for a credit card company to reject you. Any missed or late payment will show on your credit reference file for a six-year period and can seriously hamper your ability to obtain further credit.

The credit reference agency does not judge your credit history in any way and it does not influence providers about whether you are a safe bet – the information they hold is purely factual.

Getting back on track

If you are fortunate enough to be granted the use of a credit card, it could pave the way to a brighter financial future if you use it sensibly. You should see it as an opportunity to improve and rebuild your credit rating.

If you spend using the card, make sure you pay off the balance on a regular basis as this will help to boost your credit rating. A simple measure which can protect you is to set up a direct debit each month so your balance is cleared automatically. Above all else, avoid falling into the trap of missing payments and thereby making your current predicament worse.

Some card providers will look at the payment performance on your account and offer controlled increases in your credit limit when appropriate. So you may start on a credit limit of around £200, but this may rise steadily once you can demonstrate you are on top of your finances and meeting your repayment obligations.

Improving chances of being accepted

There are a few of things people can do to reduce the chance of being turned down. The first is to ensure you’re included on the electoral register. That’s a crucial piece of information used by lenders when deciding who to offer credit to.

Reviewing your credit file with the credit reference agencies regularly to make sure all information is correct and up to date is also important.

If you have been refused a credit card, ensure your next application is made wisely and directed to a provider more likely to accept you. The worst thing you can do is to make a number of application in a short space of time, because any applications you make – whether or not you’ve been successful – will show up on your credit file. Several applications in a short space of time will give the lender the impression you are desperate and will prejudice your future chances of being granted credit.