Bad credit credit cards
It's hard to get approved for a credit card when you have bad credit. Here are some of your options.
Key takeaways
- Bad credit makes it very hard to get a credit card because it increases the risks for lenders.
- Improving your credit history before you apply for card can increase your chance of approval.
- A short-term loan or bad credit personal loan might be an alternative.
- Are you in financial distress? Talk to your current bank before applying for more credit. You can also call the National Debt Helpline on 1800 007 007.
Why it's risky to apply for a credit card if you have bad credit
Bad credit, such as late payments, defaults of bankruptcy, can indicate that you have trouble paying off debts. This increases the risk for credit card issuers, both financially and in regards to the governments strict responsible lending obligations.
Getting rejected for credit card also puts a negative mark on your credit report. This means that someone with bad credit who applies for a credit card before fixing their credit problems could end up with a lower credit score.
While 12.2 million Australians currently have a credit card, some have run into difficulties accessing this form of credit. Of those who have been denied, unsteady income (34%) is the top culprit, followed by having a bad credit score (27%) and having too much debt (23%).
4 steps to increase your chance of approval
Step 1: Pay off existing debt. If you've got a loan, outstanding bills or other credit card debt, start making regular repayments. If you're struggling, you could also request a hardship variation. When a lender checks your credit report, regular repayments towards your existing debt will be viewed positively.
Step 2: Start saving. We know it might be easier said than done, but having some savings in the bank shows lenders that you'll be able to repay your credit card in the future.
Step 3: Wait until you meet the eligibility criteria. Most credit cards list an income requirement for approval. If you don't meet that, your application will automatically be rejected. Look for cards with a low minimum-income requirement or wait til you're eligible for the card you want.
Step 4: Get help if you need it. If you're struggling financially, you can speak with a financial counsellor for free by calling 1800 007 007 or through the National Debt Helpline online chat service.
How do I check my credit score?
It's always a good idea to check your credit score before applying for a loan or credit card. You might not even be aware that you have bad credit until you check.
Once you've got your credit score, you can see if there are any issues and take steps to address them. You might even find there's a mistake in the report, such as a debt that doesn't belong to you.
You can get these errors fixed and improve your credit score. But you won't know about them until you check.
You can also check out Finder's DIY credit repair guide for more help.
You can check your credit score for free through Finder at the link below.
Get your free credit report and credit score
Bad credit alternatives to credit cards
There are no specific credit cards for people with bad credit. That's part of why it's hard to get approved for a card as a borrower with bad credit.
A better option might be other forms of credit, like a short-term loan or a bad credit personal loan. These products are often designed for borrowers with bad credit.
- Short-term loans. This is a loan of up to $2,000 that has to be repaid between 16 days and 1 year, but usually terms are around 62 days. Keep in mind these loans come with high fees (a 20% establishment fee and a 4% monthly fee) so really consider how much you need it before you apply.
- Bad credit personal loans. If you're in need of a larger amount than a short-term loan offers, there are some bad credit personal loans available that can offer amounts up to $5,000 or even $10,000. These loans usually come with a flat interest rate and, if you repay responsibly, can be used to rebuild your creditworthiness.
- Low-limit credit cards. If you have bad credit and you're working to improve it, consider a card with a low minimum credit limit. This reduces the risk to the lender and you may be more likely to get approved. Once you prove that you can make repayments and are doing so regularly, you can choose to apply to increase your limit in the future.
Frequently asked questions
Sources
More resources on Finder
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