A bad credit rating has dire consequences on the number of financial options that you can access. In most cases, it makes it challenging to obtain a credit card from renowned banking institutions or credit unions. But a bad credit rating isn’t all doom and gloom. You could still apply for a credit card even with a bad credit rating, and there are numerous reputable lenders that may be willing to grant you a second chance. But you have to provide these lenders with some solid reasons as to why you deserve this second chance at getting a line of credit.
To obtain a credit card with bad credit rating you have to first put in some work, but you have to be ingenious when doing so. Here is a simple outline of insightful tips that you can use when applying for a credit card with bad credit so as to reduce your chances of getting a rejection.
Don’t Appear Desperate When Looking for Credit Cards for Bad Credit!
You may be in desperate need of a credit card, but it would negate your efforts to get one if you make this known. When in such desperate situations you may be tempted to make many simultaneous credit card applications with the hope of getting at least one credit card approval.
Don’t try this move because each application you make elicits a hard inquiry’ from the receiving institution and all these hard inquiries end up in your credit report and they have the ability to negatively affect 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 soft inquiry,’ which has no impact on your credit score or only apply for cards you’re confident to get. Making a soft inquiry saves you the costs you’d incur when making a hard inquiry.
Find Where Your Credit Score Stands
Determining where your credit score stands can help you in narrowing down your card choices to card applications that are highly likely to get approved. This also prevents you from making blind credit card applications, which elicit hard inquiries.
Checking the score also helps you know what to fix in your credit score. You never know what the check may uncover – it could be an administrative error that has lowered your score or an unpaid phone bill, which you can’t settle yet. Here are some important 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.
Checking your FICO Score includes the factors that are positively and negatively impacting your credit, and knowing those factors can help you get your credit to where you want it to be.
For starters, you should know what goes into your credit score. The FICO score is the most commonly used credit score system and here is the breakdown of the score by percentage.
- 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 figures, the most important factors to consider when trying improving your credit score include the making of timely and full repayments for all payment periods. Generally, if your credit score is above 625, then you’re in the secure zone, but anything below this should start getting you worried.
This table shows credit ratings and what they mean in terms of your creditworthiness:
Try Fixing Your Credit Report to Improve Your Prospects
It’s better to try and fix your credit report before you can make a credit card application than blindly apply and get a rejection, because the rejection will add one more negative mark to your credit report. The following three tips can help you in fixing your credit report before applying for a credit card.
1 . Pay off any other credit or loans
Lenders often approve credit card applications based on the repayment history in your reports. There is a need to show a consistency in your history of meeting your required periodical payments in the past six or more months. For credit card approvals it’s necessary to demonstrate that you have been making more than the minimum periodical repayments so as to show your ability to repay debts.
2 . Start making some savings
Lenders always review your present bank statements whenever you make credit card applications with a bad credit record. If direct debits on your account have not been honored because of insufficient funds or if you’ve recently overdrawn your account, then you’re less likely to get a favorable consideration from lenders. It is important to show that you’re not using all your income on debts and expenses. Therefore, some little weekly or monthly savings will show the credit card issuers that you have the finances to repay a credit card if it’s given to you.
3 . Try and find a steady source of income
No lending institution is legally permitted to grant you a credit card unless you have sufficient annual income to meet the minimum repayment for the card’s credit limit. The amount you earn or the sources of income does not necessarily qualify you to get a credit card. Instead, the steadiness of the income is what matters the most.
Try a Prepaid Debit Card First
Instead of thinking about applying for a credit card, you may opt to go for a debit card if you don’t have a bank account. You might need to have a bank account to get a secured credit card. If you have no bank account, you may have to use a prepaid debit card till you can open a bank account. A debit card may not help you in building credit, but it is an ideal temporary solution.
Avoid Merchandise Cards and Cards With no Grace Period if You Have Bad Credit
Not all the credit cards promoted out there are ideal for people with bad credit. As such, you should avoid some credit cards touted for individuals with bad credit because they may not help you in improving your credit score. Some of the cards to avoid include:
1 . Credit cards having no grace period
If the credit card offered to you has no grace period, just avoid signing up. If you’re not granted a grace period this means that you’ll start accruing interest immediately after the first monthly statement. It is also prudent to read the fine print of your current card offer before signing up because cards have multiple versions and some card offers change frequently.
2 . Merchandise cards
Merchandise cards alternatively known as online catalog cards are typically not credit cards. These are lines of credit, which you can only use in certain online marketplaces when shopping. These cards aren’t usable for everyday purchases, and they can’t help you in building your creditworthiness. Not to mention, such cards may increase your impulse buying.
While bad credit is not good for anyone, it doesn’t necessarily mean that you cannot obtain a credit card, and when used well, bad credit, credit card offers can help you in rebuilding your positive credit status. Whatever the circumstances you’re in, don’t get discouraged. In as little as six months, you can start witnessing your credit score improves if you use such cards responsibly and make timely monthly payments.
If you are armed with the right information to fill out a credit card application when you have bad credit, you can still get credit cards even with bad credit. But you need to educate yourself about the options available to reduce the possibility of your credit card application getting rejected even when you have a low credit score.