The top ten credit cards if you have a bad credit history

Monday, 19 November 2012 05:56

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If you have a bad credit rating and think you won’t be accepted for any credit card, think again.

There are ways of building your credit rating back up and though it means that initially you won’t be accepted for the best deals, there are credit cards available to people with a bad credit history that allow you to improve your credit score making it more likely that you can eventually put your history behind you and qualify for more competitive financial products.

The background

Since the “casino banking” era ended with the onset of the credit crunch in 2008 lenders have become a lot more selective about who they lend money to.

The days when banks sent through unsolicited offers of extended credit are gone for most of us as lenders make it much more difficult for consumers to access credit and hold people to account for previous mistakes which left a mark on their credit score.

It pays to check your credit rating before you apply for a new financial product. You can apply for a free trial through Experian available through some websites.

How to get accepted for a credit card if you have bad credit

If you have a bad credit history you may not be accepted for the best deals but there are still ways of accessing credit and if you manage that financial product sensibly then you can build up your credit score to make it more likely to be accepted for a better product in the future.

Each time you apply for a financial product, the lender will carry out a credit check that looks at your credit history to see what sort of “credit risk” you are to them. A lender wants to avoid lending to someone who may default on their debt.

It is not just people who have mismanaged financial products or defaulted on repayments who have a poor credit history. Self-employed people, individuals who are not on the electoral roll and people who just do not borrow can also have little credit history which means lenders don’t know if they are a good bet or not.

Read more: Personal loans at their cheapest for a decade

Bad credit credit cards

This is where bad credit credit cards come in and can be useful as you build up your credit rating again.

This type of credit card charges a higher rate of interest than the best buys, but if you pay off the debt incurred each month, it doesn’t matter what the interest rate is because you will not be charged any interest.

What are the benefits of using bad credit credit cards?

You can rebuild your credit history and improve your credit score. If you use a bad credit credit card or what are sometimes known as “credit builder” credit cards, you could see your credit score improve in as little as six months.

This means that you can then apply for a different credit card or other financial products with more chance of being accepted. Failing that, you can request an increase in the credit limit on your existing credit card or a reduction in the interest you pay.

If a bad credit card is all you can be accepted for it is still an advantage to have one because when you use a credit card you have enhanced consumer protection for any purchases you make using the credit card.

What are the drawbacks of using bad credit credit cards?

The main drawback is that you do not qualify for the best deals. Bad credit credit cards are for people who have a bad credit history, so naturally the lender judges them to be a higher risk customer and will limit the credit available and raise the interest chargeable.

If you successfully apply for one it is very important that you use it carefully, pay off the debt in full each months and prove yourself to be a good credit risk so you can qualify for better products in the future.

Read more: The top ten credit cards for Christmas spending

What are the advantages and disadvantages of a credit builder credit card?

Credit builder credit cards are similar to bad credit credit cards in that they offer a way for someone with a bad credit history to get access to credit and rebuild their credit history.
If you manage your debts responsibly then you can prove to the lender that you are a better credit risk than your credit score might suggest. To do this, you need to repay your debt in full each month.

The downside to these credit cards is that you are charged a higher rate of interest and do not qualify for the best deals such as zero per cent interest, cashback and other rewards, but if managed properly these advantages will be within your grasp in the future.

If you know you have a bad credit rating, don’t keep applying for deals that you will be turned down for because each time you are rejected it leaves a further mark on your credit history, compounding the problem.

The top ten bad credit credit cards
Provider Interes rate % credit limit Interest free period Comments
Barclaycard Initial 29.9 variable 3 months Suitable if you have CCJ's 12+ months ago
Capital One Classic Extra 34.9 variable 3 months No annual fee. £10 conditional annual bonus.
Capital One Balance card 34.9 variable N/A zero per cent balance transfer period
Luma credit card 35.9 up to £1,500 3 months  
Aqua Classic 29.7-49.9 £250-£1,600 N/A  
Aquis Visa Card 29.8-59.9 up to £1,000 initially None  
Aqua Advance 34.9-49.9 £250-£1,600 None APR can be reduced to 19.9%
Capital One Classic 34.9 £200-£1,500 None  
Aqua Classic 35.9-49.9 £250-£1,600 None  
Vanquis Bank Credit Card 39.9-59.9 £150-£1,000 None Open to applicants who have not applied to Vanquis in last six months

 

 

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