Arguably the most common form of borrowing, credit cards are incredibly sought after by almost everyone who has a bank account. They allow larger amounts of spending that you can repay in monthly installments with minimal interest when managed correctly.
With many cards offering 0% interest over time periods from months to over a year, the credit card can be an incredibly useful thing to have. But what if your application is rejected? Is it time to hit the panic button?
Well fear not because despite your thinking, all is not lost. Even for those of us with less than desirable credit scores, there are still cards made specifically available.
Where the use of these cards has disadvantages as well as obvious advantages, they are a great way of building an non-existent or extensively damage credit score. As with all forms of credit these days, finding the right card for you can be quite the ordeal.
Throughout this article we look to highlight some of the better options available to you, as well as answer a few of the more frequently asked questions regarding credit cards for bad credit.
Credit cards for bad credit are fairly self explanatory. There are designed to help those of us with poor credit ratings rebuild our credit scores by allowing monthly repayments on relatively small amounts. Credit can be a powerful tool when it comes to rebuilding your score, so any kind of credit you can obtain, provided it’s managed correctly, can be really beneficial.
Perfect management, can help you build a positive credit history from scratch or go a long way to repairing an already tarnished one.
These cards give you a chance to prove to bigger lenders that you can sustainably manage borrowing money, this lowers the risk of them lending to you, thus increasing your credit score. Simple right? With many companies offering credit cards for those with poor credit, these cards are now pretty readily accessible.
This can make finding the right one for you a difficult task, although we have highlighted some of the top offerings in the section immediately below this. Because the company now lending to you knows that your credit score is relatively poor, they do take advantage of this. High interest rates unfortunately come as standard, regardless of the 0% interest free period that can be used to reel you in.
Once again, interest rates is something that we will touch on later in the article. In short though, if you are going for the perfect management mantra, which you should be, interest rates can almost be disregarded, as if you are clearing the balance in full each month no interest can build up. Without clearing the balance each month, you will find that credit cards for bad credit become very expensive, very quickly. So where they can be powerful tools, they are equally dangerous.
Finding the right credit card for your needs, regardless of your credit rating is a big undertaking. This undertaking only gets bigger when your credit score is not as high as you’d like it to be. In this section we’ve highlighted what we believe are your top four options.
1. Barclay Card Initial:- - This credit card from Barclays offers you 0% interest on purchases for 3 months, which is followed by a rate of 34.9%APR if the balance has not been cleared at the end of those 3 months. This is a great solution if you can manage money well and are under increasing pressure from payday loans building up. Offering a credit limit of up to £1200 subject to status, there is plenty of wiggle room with this card. However, you need an annual income of over £3000 to apply.
2. Luma Credit Card:- - The Luma credit card is target marketed at those with a limit or poor credit history. Offering0% interest on purchases until October 2014, with a maximum credit limit of £1500, this card is a great way to increase your rating without extra cost. If the balance is however uncleared by October, your interest rate rockets to 35.9% APR.
3. Aqua Classic Credit Card: - -The Aqua Classic is aimed at borrows who may have previously incurred a number of latepayment charges, defaulted on their debts or have an undesirable number of Count Court Judgements. With the lowest interest rate of our 4 choices at 29.7%APR on a balance between £100 and £1200, there’s ample spending power. However, if you want 0% interest, you need to clear the balance in full each month.
4. Cashplus CreditBuilder Prepaid Card:- - The last option isn’t strictly speaking a credit card. However, because of this, it has a 100% approval rate, and can still build your credit score. With a £4.95 application fee and a £4.95 monthly fee, you transfer cash onto this card before spending. It shows management of money that bigger lenders are interested in, but can be very detrimental if you ever can not afford the £4.95 month fee
As we’ve already mentioned, managing to get a credit card is your first step on the road to recovery in terms of your credit score, provided you are able to manage them properly.
They show lenders your potential to manage borrowed money, as well as your ability to make adequate payments on time, minimising their risk of lending to you. Use your credit card properly, and your credit score will be through the roof in no time at all, opening your doors to bigger and better borrowing in the future.
As well as building your score, there’s also the added benefits of increasing your spending power, as well as added security when shopping online. Claiming back money that has gone awry via any retailer is much easier through a credit card.
Furthermore, many cards now are offering 0% interest free periods, from anywhere between 3 months and 2 years.
This means you can get that sought after item and spread your payments over a time period to make it that more affordable. It’s worth reading the small print however, as many people have been caught out by exponential rises in interest if the balance is not cleared after the interest free period has expired.
What you may have already realised is that any form of credit is a double ended sword. Managed correctly, they can be incredibly beneficially, but managed poorly and you’ll find yourself in a fair bit of financial trouble.Cut Up Your CardsBad credit credit cards can be particularly dangerous compared to other forms of lending. Firstly, where they should be used to build your credit score, they can really harm it if you make late payments or miss payments altogether, as well as exceeding your credit limit.
This will make future borrowing particularly difficult.
As well as the risk to your credit score, these cards also pose a significant threat to your bank balance. If you don’t clear the balance in full, you can be subject to some less than friendly interest rates. See our interest rates section below for a little more information.
These interest rates are why management is key. If for example you get assigned a credit limit of £1000, and you max it out during the 0% period. For however long the interest free period lasts your balance will remain at £1000. After that period expires, you can be paying as much as 40%APR interest on that amount, making this cards a very expensive form of borrowing.
If you stick to the choices that we have made you aware of above, you can expect fairly modest levels of interest. Unfortunately, a higher interest rate is the price that we pay for having a poor credit rating. There is however high interest, and utterly unreasonable interest, and obviously you want to make sure your card falls in the right bracket. As a rule, I would try and find a card that is between 25% and 40% APR, these cards are fairly easy to obtain, and give you a better interest rate than other options like pay day loans.
Many cards offer a 0% interest introductory period. These can be really useful, but also really dangerous if you don’t keep track of when that period comes to a close. After the 0% period, your balance is subject to whatever interest rate your card comes with. You can however, get unlimited interest free periods if you manage your card correctly. By unlimited, I mean if you clear your balance in full each month, no interest fee can be carried over to the following month. Also, remember that APR stands for Annual Percentage Rise, so that 40% would be paid over the course of a year, not month to month.
Where bad credit credit cards are a great and convenient means of improving your credit score and getting access to money fast, they are not the only option you have available to you, so if you do get declined try not to panic. These cards aren’t the be all and end all when it comes to available credit. Credit Card SurferOne other option you have available are pay day loans, also known as no credit check loans.
These loans are achievable for the poorest of the poor credit score owners, provided you have a UK based guarantor ready to back up your application. Where you’ll find longer borrowing times than with these cards, you’ll also find a much higher rate of interest, usually in the 50% region, with some as high as 399%! Have a read through our article on no credit check loans for a better idea of how to best use them to your advantage.
Another option are cards such as the Cashplus CreditBuilder Prepaid Card we mentioned above. These cards are prepaid, and have a 100% approval rate. Where they aren’t great for borrowing money, as you have to load them up with your hard earned cash, they are also interest free and give you the opportunity to prove to lenders that you can handle monthly repayments. Lastly, you have buy now pay later schemes, such as those offered by Argos.
These use a private finance company to asses whether they will lend you the exact amount of your purchase over a set time period, usually between 3 and 12 months. They allow you to make month repayments with no interest provided the balance is cleared in full by the end of your allocated time.