There’s nothing to stop you applying for a credit card if you have a bad credit history – but it could worsen your financial situation.
For starters, there’s a higher chance that your application will be unsuccessful, which could cause your score to drop even lower.
Taking on extra debt could also make your financial situation worse. Although accessing extra credit can seem like the ideal solution if you need a little more money to tide you over or have to cover an unexpected expense, interest and charges can quickly add up. Your debt will increase, and you may struggle to keep up with the repayments if money is already tight.
However, some credit cards are designed for people with a bad credit history – and, when used carefully, they could even help you rebuild your credit score. Read on to find out how a little forward planning can increase the chance of being accepted for a new credit card.
» MORE: Compare credit cards for bad credit
What is a bad credit history?
If you’ve had problems with debt in the past it may show up on your credit history. Perhaps you’ve missed payments or exceeded your credit limit, fallen into arrears or defaulted on a loan. You may have entered into an Individual Voluntary Agreement (IVA) to take control of your debts, or have a County Court Judgement (CCJ).
However, most debts – including missed payments, defaults and CCJs – are removed from your file after six years. And it’s worth noting that some debts, including IVAs and bankruptcies, won’t be removed until six years after they were recorded – and in some cases bankruptcy restrictions can stay on your credit file for up to 15 years.
As a result, the only way to know for sure if you have a bad credit history is to check your credit score with credit reference agencies like Experian, Equifax and TransUnion, or via platforms like ClearScore and Credit Karma.
Bear in mind that different agencies calculate your credit score in different ways, which makes it harder to know what a good credit score looks like. However, your credit score will always be a three-digit number – and the lower the number the worse your score. You would be considered to have a bad credit score if it is less than the numbers below, with the UK’s three main credit reference agencies:
- Experian: 720 out of 1,000
- Equifax: 579 out of 1,000
- TransUnion: 660 out of 710.
If you have a low credit score, but have never had any issues with debt, it’s important to check your credit report for errors. You may have a poor score simply because you haven’t borrowed money in the past, because you have recently moved to the UK, just turned 18, or aren’t on the electoral roll.
Spotting these issues is an important first step towards improving your credit score, which means you will have better access to credit in the future.
What is the easiest card to get with bad credit?
Some credit card providers offer credit builder cards, which are designed for people with a poor or non-existent credit history. These cards can be easier to get than other types of credit cards but, as a result, they tend to have a lower credit limit and a higher APR. Providers tend to save their best offers for customers with good credit scores, so credit builder cards are unlikely to offer perks such as rewards, cashback or interest-free periods.
Of course, there’s no guarantee that you will be eligible, so it’s important to use the provider’s eligibility checker before you apply for a credit card, to get an idea of whether or not you qualify.
Before you apply, consider if it’s wise to take on more debt, and if you’re in a position to meet the minimum repayments, otherwise you risk further damaging your finances.
Will a credit card build my credit score?
One of the main advantages of credit builder cards is that they can help you repair your credit score. Provided that you manage it well, this type of credit card can show lenders that you’re likely to pay back what you borrow, which could mean they are more likely to lend to you in future.
However, even if you get a new credit card, your credit score will only improve if you do the following:
- Make (at least) your minimum payments on time each month. This proves that you are a responsible borrower
- Don’t exceed your credit limit. Not only will this help you to avoid charges, but it will also show that you’re not overspending on credit.
- Use only a small amount of your available credit. Aim to keep your balance below 25% of your available limit – so if your credit limit is £500, your balance should stay below £125. This improves your credit utilisation ratio, which tells lenders that you’re not overly reliant on credit.
- Be consistent. Managing your account well over a period of months and years will establish a longer credit history, which tells lenders your financial situation is stable.
Don’t forget that getting a credit card isn’t the only way to improve your credit score. Making sure you’re on the electoral roll, monitoring your credit report and correcting mistakes, and checking your report and statements for fraudulent activity will also help to repair your credit report.
How to apply for a credit card with bad credit
In order to apply for a credit card you will need to satisfy some basic eligibility requirements:
- You must be aged 18 and over.
- You will need to be a UK resident with a permanent address.
- You will probably need to have a minimum monthly income, although it may still be possible to get a credit builder card if you are unemployed
- Lenders have different requirements, and you will find it harder (but maybe not impossible) to get a credit builder card if you have been declared bankrupt or have any recent individual voluntary agreements (IVAs) or county court judgements (CCJs).
Even if you meet all these requirements you should still use an eligibility checker before you start your credit card application. This will tell you if you’re likely to get the card you want and, crucially, won’t leave a mark on your credit file. This is particularly important if you have a bad credit history as several unsuccessful applications will drag your score down even further.
For the same reason, it’s wise to check your credit report for free. This will help you to spot and rectify any errors on your credit report, and help you to identify what you can do to improve your score.
If an eligibility checker suggests that you’re likely to be approved, and you’re confident that you can manage the repayments, you can go ahead and apply for a card either online or in person at the relevant bank.
The provider will need to run a credit check, so you will need to share some basic information including:
- Address details for the last three years.
- Bank account details.
- Details of your income.
- Contact details, including email address and phone number.
If your application is successful, you will need to sign a credit agreement. If you’ve applied online you should be able to do this digitally, but if you applied in person you may need to sign and return the paperwork.
Before you sign, read the terms and conditions and check your credit limit and APR, as these may be different from the advertised rates. You’re under no obligation to sign if you’ve changed your mind – and even if you do sign the agreement there’s a 14 day cooling off period, which means you can cancel the agreement without giving a reason.
Why was my credit card application declined?
It’s disappointing to be told that you’re not eligible for a credit card, and it’s rare for lenders to tell you why they came to this decision. In most cases the decision will be due to a combination of factors – perhaps you haven’t satisfied the basic eligibility requirements such as a minimum income, or a history of missed payments or defaults, or a high amount of existing debt, may have affected your creditworthiness.
In this situation, the best thing to do is check your credit report and look for any obvious issues. Where possible, take steps to correct or improve these before you make another application.
Be reassured that a declined credit card application won’t, in itself, damage your credit score. That said, every application you make will leave a mark on your report, so resist the temptation to apply for other cards right away as a run of applications will have an impact – and suggest to lenders that you’re experiencing financial difficulties.
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