Applying for a credit card with bad credit

Credit cards can provide a flexible and straight-forward way to borrow money. When used well, credit cards can allow you to borrow money and repay the amount in full, or over time with added interest to pay. When you apply for a credit card, the lenders will look at your borrowing history to decide whether to accept or reject your application. 

If you have no history of borrowing money or have previously had difficulty repaying debt, your application may be rejected and it can become increasingly difficult to access credit. 

This guide focuses on credit cards specifically aimed at people who have been rejected for standard credit cards, known as ‘bad credit’ credit cards. 

What is ‘bad’ credit?

If you’ve ever applied for a credit card and been rejected, the reason could be that you have bad credit. 

‘Bad’ credit is a term used to describe a poor or non-existent credit history. This can be caused by many things, such as missed loan payments, financial difficulties or even a lack of borrowing history - all of which result in a low credit score. A credit score is one of the tools used by lenders to determine whether to accept each application for credit, therefore a poor credit score can prevent your credit card application from being successful.

Can I get a credit card with bad credit?

‘Bad’ credit cards are designed for people with bad credit who are looking to improve their credit score. These cards are suitable for specific groups of people who may struggle to get accepted for standard credit cards. Common reasons for a bad credit score include:

  • Late or missed credit card payments

  • Defaulting on loan payments

  • Declaring bankruptcy

  • Being the subject of a County Court Judgement (CCJ)

  • Being in mortgage payment arrears

  • Having no previous credit history

If your credit score indicates that you have ‘bad’ credit, there are still credit card options available. You can apply for a credit card with bad credit and you could be accepted for a ‘bad credit’ (also known as low-score) credit card, specifically designed to help you to repair or build a credit history.

Improve your credit score and you can increase the available options when you are looking to borrow or purchase new financial products. A credit score helps lenders determine whether or not to offer you credit, as well as impacting the terms of the credit you are offered. A good credit score can give you access to lower interest rates and credit card offers.

What to consider before you apply for a credit card with bad credit

There are a number of things to determine before you apply for a credit card with poor credit. 

Credit cards for bad credit, like all standard credit cards, allow you to borrow money from a lender that you can repay immediately or at a later point. Be sure that you understand the terms of the agreement before you apply for a credit card with poor credit history.

Consider whether you can repay in full

If the reason you want to apply for a credit card with bad credit is rebuilding your credit history, one of the most important things you can do is repay the balance in full each month. Lenders want to see that you can be trusted to repay and manage your financial obligations, so repayment in full will help boost your credit score. 

Check the interest rate

Before you apply for a credit card with bad credit, make sure that you understand the interest rate APR (Annual Percentage Rate). This figure shows you how much you would pay the lender in interest over the year on top of the borrowed amount if you do not repay more than the minimum amount each month.

Use a bad credit card eligibility checker

Before you apply for a card, use a credit card eligibility checker. Through using an eligibility checker you can reduce the likelihood of rejected applications, which can impact your credit score negatively and continue to make it harder for you to access credit.

Advantages of ‘bad’ credit cards

If you have a bad credit history, using a ‘bad’ credit card could be a good option. Bad credit cards are aimed at people with poor credit scores and have several advantages including:

Rebuild your credit score

‘Bad’ credit cards are designed to enable people who have poor credit scores to demonstrate their ability to use credit responsibly. If you have poor credit, you can, over time, improve your credit score to allow you to access a wider range of credit products.

Higher chance of approval 

It can be difficult to get accepted for a standard card when you apply for a credit card with poor credit history. ‘Bad’ credit cards are designed for people who are not likely to succeed in applying for a standard card, therefore, the chance of your application being approved is higher.

Low credit limit 

A common feature of ‘bad’ credit cards is that they have lower credit limits than standard credit cards. A credit limit is the maximum amount that you can borrow at any one time, so a low credit limit can help improve your credit history by minimising the risk that you overspend and get into large amounts of debt.

Potential benefits

Certain ‘bad’ credit card lenders may offer benefits with the card. For example, there may be an option to increase your credit limit after a period of time if you are able to demonstrate that you have made all repayments on time. 

Disadvantages of ‘bad’ credit cards

‘Bad’ credit cards are designed for people with poor credit scores or non-existent credit history, so it isn’t a surprise that there are some downsides to ‘bad’ credit cards that you should consider before applying for a card.

High interest rates

The interest rate is often higher on a ‘bad’ credit card than on a standard card because lenders typically consider customers with poor credit scores to be higher-risk borrowers. As always with a credit card, aim to repay the balance in full each month and avoid any interest charges.

Lower credit limits

Although this can be helpful for managing your use of credit, ‘bad’ credit cards typically have lower credit limits than standard credit cards, which may be a disadvantage for people looking to borrow significant amounts.

Damage your credit score

You can damage your credit score further and ultimately, eliminate your chances of getting a credit card for a long period of time if you don’t manage any credit card well. This applies to all credit cards, including ‘bad’ credit cards designed to help rebuild credit scores. Aim to pay off the full card balance every month and always repay at least the minimum to avoid damaging your credit score.

How to use a ‘bad’ credit card eligibility checker

It can be tempting to always apply for the credit cards with the best offers and lowest interest rates. However, when you apply for a credit card with poor credit history, lenders are more likely to reject your application and the failed application will be stored on your credit report.

This can set off a spiral of application rejection - when you next make an application, the lender will be able to see your report showing the reasons you were rejected in the first place, as well as your failed application too. 

You can run ‘soft search’ eligibility checks to see which credit card applications are most likely to be accepted and avoid multiple failed applications, which can damage your credit score and keep you in the spiral of rejection. Using a bad credit card eligibility checker isn’t a guarantee that your next credit card application will be accepted, however, it does allow you to make a more informed decision before choosing where to apply.

What information do I need to provide?

When you use a bad credit card eligibility checker, you will be asked to enter your personal details and input information about your current financial situation. This allows soft search tools to estimate your credit score and indicate which lender’s criteria you are most likely to meet. The search results will indicate the cards you are most likely to be accepted for, along with other key conditions that are likely to come with the card. Review the best results and decide whether to proceed with an application.

Running a soft search doesn’t affect your credit score, so you can perform soft searches as many times as you like and your credit score will remain unaffected. 

How to rebuild a credit score with bad credit history

Your credit score is an important metric in your financial life as it indicates to potential lenders how risky you are as a borrower. A good credit score can enable you to access better interest rates on credit cards, loans and mortgages, so improving your credit score can have a significant impact on your life. 

There are several ways you can rebuild your credit score with a bad credit history whether or not you decide to apply for a credit card with bad credit. Here are some practical steps you can take towards improving your credit score.

Register on the electoral roll

You can quickly improve your credit score by registering on the electoral roll. It is much harder to get a credit application accepted without being registered as registration on the electoral roll allows your identity and address to be verified by potential lenders. You can register on the electoral roll even if you live in shared accommodation.

Check your credit report

Credit reporting agencies hold large amounts of data on each person and incorrect information can harm your credit score. Check your credit report thoroughly and update any missing or incorrect information, as well as looking out for any fraudulent activity. Contact the relevant credit agency if you notice any errors and they can update your report.

Don’t max out available credit

Utilising all (or a significant amount) of the available limit on any credit card can suggest an over-reliance on credit to the lender and have a negative effect on your credit score. Repay the full balance every month where possible and at a minimum, make sure you pay the minimum amount. 

Beware linked accounts

If you have a joint financial product such as a bank account or mortgage, your credit history will be linked to the other person named on the account. Therefore if your partner or housemate has a poor credit history, keep your finances separate and your credit score should not be affected. Equally, if you split up from a partner with whom you shared an account, inform credit agencies that you wish to be disassociated from them.

Avoid multiple applications

Avoid multiple credit card applications within a short time frame. Each credit card application will show on your credit report and multiple failed applications in a short time period can suggest to lenders that you may be overstretching yourself financially and reject you, which can damage your credit score.

26th May 2020