Credit cards for people with bad credit

When you apply for a credit card, your credit history is the main deciding factor, and bad credit history makes it a lot harder for you to get approved. Luckily there are alternatives, so you can get a card, and not only that, you can use it to rebuild your credit over time.

Compare credit cards for bad credit:

Summary
  • Ideal if you have a fair credit rating.
  • Online account management.
  • 51 day interest free period on purchases.
Credit Limit:
Up to £1,200
Representative APR: 34.9%   Apply Now
Summary
  • Some credit history required.
  • Online and mobile account management.
  • Quick response when you apply.
Credit Limit:
Up to £1,500
Representative APR: 34.9%   Apply Now
Summary
  • Some credit history required.
  • Past CCJs or defaults OK.
  • Option to increase credit limit in future.
Credit Limit:
Up to £1,500
Representative APR: 34.9%   Apply Now
Summary
  • No credit history required.
  • Ideal if you are new to credit.
  • Past CCJs or defaults welcome.
  • Online and mobile account management.
Credit Limit:
Up to £1,500
Representative APR: 35.9%   Apply Now
Summary
  • A prepaid card that can also help build your credit.
  • Guaranteed approval.
  • No credit check.
  • Card purchase fee and other fees apply.
Credit Limit:
N/A
Representative APR: Not applicable   Apply Now
Summary
  • Alternative credit scoring system.
  • Helps you get financial services even if you have to credit history at all.
  • Partly based on information you provide.
  • Ideal for migrants, expats and students.
Credit Limit:
N/A
Representative APR: Not applicable   Learn more about Aire services

Overview

When you apply for a credit card, the main factor that determines whether you get approved or not is your credit rating: this is a score that’s created by Credit Reference Agencies, it is based on your past dealings with any form of credit that is reported to them, these include; mortgages, car loans, hire purchase goods, your mobile phone contract and many others. The outcome of these dealings, whether good or bad, is what makes up your credit history.

If you haven’t used any form of credit before, for example someone who just turned 18, or have missed payments in the past, had a CCJ or a bankruptcy, your credit rating will be low and therefore you’re likely to get turned down should you apply at a bank or other mainstream card issuers.

A bad credit rating isn’t the end though as there are cards that are designed to serve people in this category, like the ones listed above. They will function the same as a normal credit card i.e. you should be able to use it in all places that accept credit cards, the main difference is that you should expect to pay a higher interest rate.

Advantages

  • 1. Access to credit
    Lending decisions are mostly based on your credit history, i.e. your history of borrowing and paying back money to financial institutions. If you’ve missed multiple payments or defaulted on debt in the past, it will result in bad credit history, therefore difficulty getting credit from future lenders.

    Credit ratings are also increasingly being used for other things besides lending decisions; therefore it is important to have a good one. In order to improve a credit rating, you need to have access to credit facilities; credit cards for bad credit provide that all important access for people who might not have had that access otherwise.

  • 2. Repair your credit history
    If there’s one positive to take from credit ratings, it’s the fact that with time and activity they can be changed, however bad yours is, it’s comforting to know that you can always improve it.

    The way you improve your credit is by showing financial responsibility, i.e. make your payments on time and never go over the authorised credit limit.
    Use your credit card regularly and pay off more than the minimum required every month; these activities are reported to Credit Reference Agencies by your card issuer, they will add positive points to your credit history and over time you will gain enough positive points to overturn bad credit.

Disadvantages

  • 1. Higher interest costs
    To a card issuer, a credit rating is like a risk meter; the lower your credit rating the higher the risk of you missing payments or defaulting. To compensate for the risk, they charge a much higher interest rate than you might pay if you had good credit.

    You can reduce your interest costs by keeping your outstanding balance low or paying it off entirely every month, remember you only pay interest on existing balance. Also on some cards you get a grace period on new purchases during which you won’t be charged interest, you can take advantage of this by paying down old debt before making new purchases.

  • 2. Low credit limit
    As a way of reducing risk, bad credit cards typically have very low credit limits; £300 - £1500. This will not be an issue if you just want to build your credit since the money is available for you to reuse soon after you pay it back.

    If the low credit limit is an issue for you, you can apply to have it increased after you’ve had the card for some time, a year for example.

  • 3. No perks
    As a society, we have become accustomed to perks like 0% Balance transfer or Cash back on purchases whenever we sign up for a new credit card, however, when you sign up for a bad credit card you won’t be offered such perks, although you get the same level of fraud protection and Consumer Rights protection that all credit card users enjoy.

Alternatives

  • 1. Prepaid cards
    These are top-up cards whereby you deposit money onto the card before you can use it to make payments, after you’ve made the top-up, they function just like any other payment card and will be accepted by all merchants that accept normal credit cards.

    By default, prepaid cards do not allow borrowing; you can only spend what you put onto the card, this means that it’s easier to get approved than any other payment card.

    Some prepaid card issuers also offer an additional Credit Building Service whereby they lend you a small amount of money through the card and you repay it over several months. For some people this can be the safest way to improve a credit rating because of the small amounts of money involved and ease of approval.

  • 2. Second card holder
    If your spouse or another family member already has a credit card and you just need a card that you can use to make purchases, you can ask them to add you to their account; some credit card issuers allow for a second card for a family member. If approved, a second card will be issued with your name on it, which means you can use it independently.

      Pros:
    • You’ll have a card in your names, no credit scoring will be done since it’s not your account.
    • The interest rate is based on the account holder’s credit rating, if they have good credit, you will benefit by paying a lower interest rate than you might have if you had your own account.

      Cons:
    • It will not improve your own credit score since you’re not the account holder.
    • The account holder is responsible for all debt incurred on both cards; if you cannot repay what you’ve spent on the card, it will negatively affect the account holder.