Advantages
1. Access to credit
A poor credit history is meant to be an indicator of bad financial management or irresponsibility,
card issuers use it to weed out potentially high risk borrowers. However, the credit score does not
always tell the full story; some people end up with poor credit due to mistakes,
some can change and become better at financial management.
Poor credit credit cards are a means for those who've had a CCJ, IVA,
defaults or other financial difficulties to get access to credit. They're also a good starting point
for people who've had no credit before in the UK.
2. Improve your credit rating
The positive thing about credit ratings is that they constantly change; however bad yours is, you can always improve it over time.
The most effective way to improve a credit rating is by exercising financial responsibility, usage of such a card is
one of the ways you can prove that you're financially responsible; if you use the card regularly, make at least the minimum payment each month, make the payments
on time and never go over the authorised limit, your credit score will go up by a few points each month and
might eventually overturn a bad rating.
Disadvantages
1. High interest rates:
A bad credit rating suggests that you're more likely to miss a payment or default on your debt than someone who has a good credit rating,
for this reason card issuers charge a higher interest rate as a way to make up for the high risk.
This disadvantage can be managed by paying off as much of your outstanding balance, as early as possible; credit card interest is
calculated daily and you only pay interest on outstanding balance.
2. Low credit limit:
UK bad credit cards typically have a low credit limit, this might not be an issue for most people but if you plan to use the card regularly,
there's a risk of going over the credit limit, which would incur a fine.
Alternatives
1. Prepaid cards
These are top-up cards whereby you deposit money onto the
card before you can use it for shopping on the internet or on the highstreet.
Prepaid credit cards are an ideal
option for people with very bad credit history as they do
not require a credit check or even a bank account. The downside is that in most cases they can
not be used to improve your credit rating as there's no excercise of financial responsibility.
2. Joint credit cards
If a spouse or family member has better credit history than you, you may consider
applying for a joint credit card; essentially these are normal credit cards whereby more than one account
holder is allowed, most credit card issuers allow joint accounts, even
with one of the account holders having bad credit.
The advantage is that you're likely to get a better interest rate than you would should you apply for a credit
card with bad credit individually.
Note:
A joint credit card also means joint responsibility; any mistakes, such as a late or missed payment affects all
account holders regardless of who's duty it is to make the payment, therefore it is important to take extra care should you decide to go for this option.
