Applying For Credit Cards When You Have Bad Credit
For those with a poor credit score, getting a credit card is harder. However, there are solutions.
Who says it’s bad credit?
Three UK credit reference agencies (Experian, Equifax and CallCredit) hold details of an individual’s financial activity, as well as details of their Electoral Roll entry, any Court records including County Court Judgements (CCJ) and credit card applications. When a new customer applies for a credit card, the issuing company checks this record and notes its contents. It then puts this information and that from the application form into a complicated risk-assessment formula. If the applicant fits their lending criteria, all well and good, but if not, as they say in tv’s “Little Britain”, “The computer says no.”
Why is a credit score poor?
A poor credit score (or low credit rating) usually results from a mix of financial ingredients. This can include, any missed or late payments on credit cards, loans, APR agreements, or household bills, any CCJ made, or even the failure to register on the Electoral Roll. If the applicant shares a bank account or even a utility bill with a person with a poor credit score, this can affect their score, as both parties are deemed to be financially linked.
There must be some mistake!
There might be, and the easiest way to check is to buy the contents of a credit file for just £2 from any of the UK credit agencies. Look for mistakes in past addresses as well as the more obvious errors such as incorrect credit applications or Court information. Check to see if past financial ties (such as bills with ex-partners) have been removed. If a record does have to be amended, make sure it has been changed by ordering another report six weeks later.
Too much of a good thing?
Too many credit card applications in too short a space of time can also affect the credit rating, as can holding too many credit cards that are dormant. Cancel all unused cards to free up the credit file for future applications.
Bad credit credit cards
These cards offer credit to those with a poor credit score, in return for a higher rate of interest and possibly an annual fee too. The two main contenders in the field are currently Barclaycard Initial and Capital One Classic.
The Barclaycard Initial* offers purchase APR of 27.9%, with an interest free period of 56 days, but no balance transfer option. There are no fancy frills in the deal, and you can’t even choose the design, but it does offer an Internet Fraud Guarantee and online account management, and Nectar points on purchases too.
The Capital One Classic* offers purchases at 29.9% APR and a balance transfer rate of 29.94% APR. There is no annual fee and the top credit limit available is £2,500. It too offers Internet Fraud Guarantee and online account management, but you can choose the design.
Snapping at their heels is the Citibank Classic Plus credit card*, which offers a highly competitive APR of 21.9% on purchases, plus a 0% balance transfer for three months. It also offers a 56 day interest free period and a top credit limit of £3,000. It even offers cash advances at an APR of 25.4% and a fee of 3% on top. The minimum payment is 3% of the balance, just a little higher than standard cards.
*These offers are correct at the time of publishing, please check appropriate websites for updated offers
Improving a Poor Credit Score
The single most effective method is to spend only as much as required on the card and pay it off in full every month. The interest rate might be high, but with the balance paid off every month, the user will never have to pay it. Once the card has been used for a year or so, the card holder might be able to apply for a new card. Alternatively, they can ring their existing credit card company and simply ask for a lower rate, now they are a lower risk themselves. (Also, please read the article Using Your Credit Card To Build Credit History, for more information about building your credit history)
To avoid ever missing payments, set up a Direct Debit for the
minimum payment every month, and pay off as much of the rest as possible. NEVER allow this Direct Debit to bounce by emptying the source bank account.
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