Bad credit ratings have serious consequences for the number of financial options you can access. In most cases, getting a credit card from a reputable banking institution or credit union is challenging. But a bad credit rating is not at all harsh and disappointing.
You can apply for a credit card even with a bad credit rating and numerous reputable lenders are willing to give you a second chance. But you have to give these lenders some solid reasons why you deserve this second chance to get a line of credit.
You have to put in some work to obtain a credit card with a bad credit rating, but you need to be smart when doing this. Here’s a simple outline of the intuitive tips you can use when applying for a credit card with bad credit to reduce the chances of getting rejected.
Don’t Appear Desperate When Looking for Credit Cards for Bad Credit!
You may be in dire need of a credit card, but if you say so, it will negate your efforts to get it. In such a frustrating situation you may be tempted to create multiple credit card applications simultaneously hoping to get at least one credit card approved.
Do not try this move because every application you make receives ‘severe inquiries’ from the receiving institutions and all these hard inquiries ends up in your credit report. They have the potential to have a negative impact on your credit score for at least 12 months. Instead, when you have a bad or sub-prime credit rating, you should do a personal pre-qualification check or a soft inquiry, which only affects your credit score or apply for a card you are confident in.
Find Where Your Credit Score Stands
Determining where your credit score is can help you narrow down your card selection for more likely to be approved for card applications. This prevents you from creating blind credit card applications, which conduct rigorous inquiries.
Score checking also helps you determine what to do with your credit score. You don’t know what a check may uncover – it could be an administrative error that caused your score to drop or an unpaid phone bill, which you still can’t settle. Here are some key factors that determine your credit score:
- The number of timely or delayed repayments.
- Failure to make repayments.
- Getting many balance transfer credit cards one after another.
- Failing in repaying balance transfers by the end of the promotional interest time.
- Making many credit card applications that get rejected.
For beginners, you need to know what goes into your credit score. Fico Score is the most widely used credit score system and here is a percentage score breakdown.
- 10% from the credit mix
- 10% from new credit
- 15% from the length of credit history
- 30% from your owed amounts
- 35% from your payment history
Based on these statistics, the most important factor when trying to improve your credit score is to make timely and full repayments for all due dates. Normally if your credit score is above 625 you are in the safe zone, but anything below this should start to worry you.
This table shows the credit rating and what it means for your creditworthiness:
Try Fixing Your Credit Report to Improve Your Prospects
It is better to record your credit report before applying for a credit card than to apply blindly and refuse because denial will add another negative mark to your credit report. The following three tips can help you determine your credit report before applying for a credit card.
1 . Pay off any other credit or loans
Repayment history often benefits credit card applications. Lenders often approve credit card applications based on the repayment history in their reports. You need to show consistency in your history of completing your required period payments in the last six or more months. Credit card approval requires that you show that you are withdrawing more than the minimum periodic repayment to demonstrate your ability to repay the loan.
2 . Start making some savings
Lenders always review your bank statement when you apply for a credit card with a bad credit record. It is important to show that you do not use all your income on debt and expenses. Therefore, a small weekly or monthly savings shows credit card issuers that you have the finances to repay if the credit card is issued to you.
3 . Try and find a steady source of income
No lending institution is legally allowed to issue you a credit card unless you have sufficient annual income to pay the minimum for the credit limit of the card. The amount of money you earn or the source of income does not qualify you for a credit card. Instead, income stability is most important.
Try a Prepaid Debit Card First
If you do not have a bank account, you can choose to go for a debit card instead of considering applying for a credit card. You must have a bank account to get a secure credit card. If you do not have a bank account, you will need to use a prepaid debit card until you open a bank account. A debit card may not help you build credit, but it is an ideal temporary solution.
Avoid Merchandise Cards and Cards With no Grace Period if You Have Bad Credit
Not all credit cards advertised are ideal for people with bad credit. Likewise, avoid some credit cards for people with bad credit because they may not be able to help you improve your credit score. Some cards to avoid include:
1 . Credit cards have no grace period
Avoid signing up only if the credit card offered to you has no extra time. If you are not granted a grace period, this means that you will start accruing interest immediately after the first monthly statement. It is also wise to read the fine print of your current card offer before signing up as there are multiple versions of the card and some card offers change frequently.
2 . Merchandise cards
Merchandise cards are not usually credit cards, alternatively known as online catalog cards. These are the lines of credit, which you can only use in some online marketplaces when you make a purchase. These cards are not used for everyday purchases and cannot help boost your credit. Not to mention, such cards can boost your impulse purchases.
While bad credit isn’t good for everyone, it doesn’t mean you can’t get a credit card, and using good, bad credit can help you rebuild your positive credit status. Don’t be discouraged by the situation you are in. In at least six months, if you use such cards responsibly and make monthly payments on time, you can start to improve your credit score.
When you have bad credit you should be armed with the right information to fill out a credit card application. If you are armed with the right information, you can still get a credit card despite the bad credit. But you need to educate yourself about the options available to you to reduce the chances of your credit card application being rejected even if you have a low credit score.