What are credit cards for bad credit?
Bad-credit credit cards, sometimes known as credit builder cards, are a type of credit card available to people who might not get accepted for standard cards. These cards can help you get credit and, as long as you meet the repayments each month, help to prove that you can manage money in a responsible way. If your credit score is low, then a bad-credit credit card can be a good way of building it up.
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How do bad-credit credit cards work?
As with all credit cards, credit cards for poor credit will have a maximum spend limit. However, the limit is typically lower than most other credit cards – from around £100 to £1,200.
It’s also very important you understand the APR (annual percentage rate). A credit card’s APR shows you how much interest you’d be charged, over the course of a year, for borrowing on credit if you don’t pay the outstanding balance back in full each month.
Credit cards for bad credit often come with higher interest rates, so it’ll cost you more money than other types of credit card (in terms of interest) if you don’t pay off your balance each month. This reflects the greater risk the provider is taking on by lending money to someone with a poor credit history. As with any credit card, it’s really important to pay off what you owe on the card in full, each month. Depending on the terms and conditions set out in your card agreement, your credit limit could be increased as you prove that you can spend more responsibly. But this depends on many factors – including the terms you agreed to when you applied for the credit card.
Who are bad-credit credit cards for?
Credit building cards are aimed at people who want to improve their credit score, or for people who aren’t eligible for many other cards. People they’re aimed at include those with:
- past debt problems
- County Court Judgements against them
- a history of bankruptcy
- a record of unpaid bills
- no history of borrowing
- no entry on the electoral register
To apply for a credit card, you must be a UK resident and at least 18 years old.
How to get a credit card with bad credit?
If you currently have a bad credit score, getting the right credit card can help you improve it over time. To help you have a better chance of being accepted, we’ve put together some helpful tips:
Start by using an eligibility calculator before you apply
This will give you an idea of the likelihood of you being accepted without impacting your credit score.
Only apply for credit cards you’re likely to be eligible for
There are lots of options for people with bad credit, so it’s just a case of finding the best credit card for your situation. Once you’ve found a suitable card, using our eligibility calculator, you can make your application. During your application, you’ll likely need to supply the following information:
- Proof of ID
- Proof of address for the previous three years
- Recent bank statements
- Your salary details
- Your employer details
If you get rejected for a credit card, don’t immediately apply for another
Applying for a credit card leaves a mark on your credit report which can impact your score. If you’re repeatedly rejected for credit in a short period, this will significantly lower your score further. Instead, take the time to reassess your options, and use our eligibility calculator to find another potential alternative that suits your financial situation.
What’s a credit score and why is it so important?
A credit score is a tool typically used by a lender to work out whether you qualify for a particular credit card, loan or mortgage. A higher score means you're more likely to be accepted for credit. A lender will also consider your credit report (or history), detailing all the credit you’ve had, or have applied for in the past.
If you’re struggling with a bad credit score or poor credit history, this can make getting accepted more difficult, but it’s not impossible. As with any credit product, you will face a credit check when applying for a bad-credit credit card, but the barrier to entry is much lower. Because of this, you’ll face higher levels of APR and lower credit limits with these sorts of cards.
Read about some of the steps you can take to improve your credit rating.
What is considered a bad credit score?
It’s important to know if you have a bad credit score, so that you can take steps to improve it and avoid the problem worsening. However, it can be slightly confusing to know if your credit score is bad or not, as different credit rating agencies (CRAs) use different scales for scoring.
Experian, TransUnion and Equifax are the three largest CRAs in the UK. They each have a different scoring system, so a score of 700 with one could mean something very different with another. Here’s a breakdown of they each compare their scores.
These credit score ratings are accurate at the time of publishing on 17 September 2020.
What are the pros and cons of credit cards for bad credit?
As they tend to have a low credit limit, a bad-credit credit card can be a good way of reversing your poor credit history. The low credit limit could prevent you from racking up thousands of pounds' worth of debt over a short period of time.
You might view a low credit limit as a drawback. But if you make all your repayments on time and don’t exceed your credit limit, your credit rating should improve over time.
Don’t forget, paying with any kind of credit card, including a credit builder card, gives you extra consumer protection for anything you buy that costs between £100 and £30,000. See more on credit card purchase protection.
One of the disadvantages of credit cards for bad credit is that they tend to carry a higher interest rate – between around 29% to 60%. That can make them expensive to use if you don’t pay the balance back in full every month. And don’t forget there’s always a risk involved in taking out any kind of credit.
You should also look out for an annual fee. While some credit cards won’t charge an annual fee, others do, and you should consider it when comparing cards. Don’t immediately discount those which charge an annual fee though, as you may find the other benefits, such as a higher credit limit or lower interest rate, may outweigh the cost.
How are credit cards for bad credit different to other credit cards?
The differences between credit cards for bad credit and other credit cards are features, rates and limits. Some common extras available with normal credit cards include rewards, gifts and cashback on purchases. With a credit card for those with bad credit, you’ll be unlikely to receive these sorts of features.
With a bad-credit credit card, you tend to have a stricter credit limit, which means you won’t be able to borrow as much. You can always apply for a credit limit increase if your credit score rises and you prove to your lender that you are more financially responsible.
You’ll also likely be charged higher interest rates with a bad-credit credit card. By improving your credit score and moving to one of the regular credit cards, you’ll typically be rewarded with lower rate, as lenders have more trust in your ability to repay what you owe.
What else should I look for when choosing a bad-credit credit card?
When comparing credit cards for bad credit, you might want to ask yourself:
- Does the credit lender run a ‘soft check’ before I apply? A soft check is when a person or company checks your credit report as a background check. Each time you apply for credit it’ll show up in your credit history. A soft check won't affect your credit score or report in any way, but it will help you know if you’re likely to be accepted for a card, without fully applying. If the lender runs a hard check, this will show up on your credit record. To minimise potential problems, you could see what credit cards you’re likely to be accepted for with our credit card eligibility checker
- Can I manage my credit card account online or through an app? Some providers will notify you via a text or other alert when a payment needs to be made, or a new statement can be seen – both of which can help you to keep on top of your finances.
- Can I transfer an outstanding balance? Some credit building cards will allow you to do this.
- What fees and charges might I have to pay? Check what the fees may be for late payments, for going over your credit limit or using your card abroad, for example. You should also check for any annual fees for taking out a credit card. Not all providers charge an annual fee, but some do, so you should keep an eye out for them when comparing.
- Does the card offer any benefits? Some cards may promise a reduction in interest rates if you make all your payments on time and stay inside your credit limit in the first year. But these cards may have a higher rate of interest to start with. Other cards, for example the Tesco Bank Foundation Clubcard Credit Card, may give you points.
Make sure you check any eligibility requirements, too. Some credit cards for bad credit rule out potential borrowers on specific grounds. For example, if you’ve missed more than three payments on another credit product in the last six months.
Credit cards for unemployed people
If you’re unemployed, having no form of income will likely make it difficult to get a credit card. This is because most credit cards, even credit cards for those with bad credit, require a minimum level of income before they’ll be considered. To get a better idea of understanding your options, and to find out if there’s a credit card out there for you, your best bet is to start comparing credit cards and review the requirements for application. Because of your unemployed status, any cards you may be eligible for will likely charge higher fees, as providers seek to offset the risk as much as possible.
Frequently asked questions
How else can I improve my credit score?
If you’re having trouble with a poor credit score, there may be some quick and easy things you can do to improve it. Others take more time, but consider the following:
- Check your credit report for any mistakes – simple errors on your credit report may be negatively impacting your score. Correcting these could improve it.
- Register on the electoral roll – potential lenders like to see a proof of consistent address.
Consistently pay bills and other direct debits – proving that you’re able to reliably pay bills and other outstanding debts is a great way to improve your credit score. This will take time, but potential lenders will want to see that you can be financially responsible.
- Consistently pay bills and other direct debits – proving that you’re able to reliably pay bills and other outstanding debts is a great way to improve your credit score. This will take time, but potential lenders will want to see that you can be financially responsible.
- Keep within the limits of any credit accounts – proving that you’re financially stable will reassure potential lenders. Staying within any credit limits is a good way of doing this. Ideally, staying below 25% of your limit is best, but the main thing is that you don’t live consistently at the limit.
- Don’t apply for credit repeatedly – each application for credit will leave a mark on your credit report. Repeated rejections will significantly lower your score.
What APR will I get?
It depends. When credit card providers show a representative APR, the rules say this rate must be offered to at least 51% of people accepted for the card.
The remaining 49% of successful applicants are more likely to be offered a higher interest rate. If you’re one of these people, the rate you’re offered will be based on how big a risk the credit card company consider you to be.
So, if you have a bad credit history, you’ll probably get a higher APR with your card to offset the risk you pose to your provider. If you can prove that you’re responsible with your credit card, your score will likely improve, which may lower your APR, and could also improve other things like your credit limit.
Using an eligibility checker that doesn’t leave a record on your credit file can be a good way of seeing the rate you might be offered. Why not try AutoSergei's™ credit card eligibility checker now? It takes under an average of 1 minute**.
**On average it can take less than 1 minute to complete a credit card eligibility check through Compare the Market based on data in September 2020.
What credit limit will I get?
Your credit limit is the maximum amount you’re able to borrow using your credit card. Your credit card limit will depend on several key things:
- Your credit score and history
- Your salary and other income
- Any outstanding loans or debts
- General affordability – assessed based on your combined incomings and outgoings
If your credit score is on the low side, you may face a lower credit limit to the one advertised. This is to protect the lender, who thinks you could be a slightly higher risk. If you can prove that you’re responsible with your credit, then you can apply to have the limit raised.
Simply put, the more you earn, the higher your credit score, the lower your existing debts and the higher your credit limit tends to be. These things prove to lenders that you can be trusted with a larger amount of credit and pay it back responsibly.
To find out what your credit limit could be, you can use an eligibility checker, but the exact figure will be decided during your full application.
If you successfully apply for credit and then your credit score improves, you may be able to apply for credit limit increases, as you’re proving that you are a reliable borrower. Meeting the minimum payments on your card, and staying within your credit limit consistently is a good way to do this.
Why might I be refused credit?
There are many reasons you could be refused credit, or be seen as a bad credit risk. It could be that you’ve no history of credit, have never borrowed or even had an overdraft. In that situation, a lender will have a limited idea of whether or not you’d be a good risk, and whether you’d be able to pay back what you owe. Another factor could be that your employment status isn’t strong enough to get the credit card you’d like.
Credit checks also highlight any problems you may have had in the past with paying back debt. To a potential lender, this might serve as a red flag and they may refuse to accept your application. Checks will also show whether you have any County Court Judgements (CCJs) against you, and whether you’ve ever been declared bankrupt, or if you’ve committed fraud.
If you’ve been a victim of fraud in the past, this could also make getting credit difficult.
If you’ve been refused a credit card, you shouldn’t immediately go and apply for another, as quick successive rejections can lower your credit score much quicker and make the situation worse. Instead, you need to find ways of building your credit score.
Where can I check my credit report?
There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion (formerly Callcredit). These organisations compile information about how you manage your money (assuming you’re over 18). However, it’s worth noting that not all of them will hold exactly the same information about you.
If you’ve been refused credit, you can ask why and find out which credit reference agency (CRA) was used. You can also check your credit report to make sure it’s correct. You might find there’s a genuine error on your report. A refusal could be down to something simple like your address being wrong.
You can check your credit report for free. The three main agencies allow you to do this online at Experian, ClearScore (Equifax) or Credit Karma (TransUnion), or you can write to them and ask for your report. If you want additional services like continual credit monitoring, you may be asked to pay an additional fee. Check out our guide to free credit checks.
Remember too, that Compare the Market’s AutoSergei credit card eligibility checker allows you to see the cards you're most likely to be accepted for, without affecting your credit score.
What if I have no credit record?
Young people or people who have never borrowed before can find themselves in a catch 22 situation. As they haven’t borrowed before, they won’t have a credit record. Without a credit record, providers may be unwilling to lend to them.
A credit card with a low limit can be a good way to start building credit. If you’re considering this option, make sure you’re on the electoral register.
You can use our AutoSergei eligibility checker to see the cards you’re most likely to be accepted for, before you apply. This helps you avoid making multiple applications that could make you look desperate for credit. Ideally, you should pay back what you spend in full every month and make all payments on time. Over time, this can help you build a good credit record.
A mobile phone contract with regular bills that you always pay off may count favourably towards your credit record. See more on how to build your credit score.
Could using a credit card make my credit score worse?
Using a credit card could make your credit score worse, if you’re not careful.
Late and missed repayments will damage your credit score. And just because you have a credit card limit, it doesn’t mean you should spend up to it. Credit ‘utilisation’ – how much of your credit limit you’ve used – is one of the factors that affects your credit score.
If your credit utilisation rate is high, providers may worry that you’re facing financial difficulties. See more about what a credit utilisation rate is and why keeping it low is important.
Where can I compare credit cards for bad credit?
We’ve teamed up with Runpath Regulated Services Limited to show the key features of each of the credit-building cards you can compare with us, helping you to choose the card that’s right for you. Don’t forget, with AutoSergei, you can see which cards you’re likely to be accepted for, without affecting your credit record.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility
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