Credit cards for bad credit

The eight golden rules

Before you get one of these bad credit credit cards, there are a few things you need to know. Get this wrong and it can cost you large, so please read the following (even if you only have time to read and remember the headlines, it should help protect your pocket).

• If you've been rejected for a credit card, FREEZE! Don't apply for another straightaway.

  Apply for too many cards and receive multiple rejections in a short period and you could shoot your credit rating in the foot for years. This is the dreaded rejection spiral!

  Here's how it works...

  • You apply for a new credit card and get rejected. This could be for a number of reasons: a bank error, incorrect info on your credit file, or you've applied for a card intended for those with an 'excellent' score when you only have a 'good' score. Sadly, many lenders don't publish their criteria before you apply.
  • You apply elsewhere, and get rejected again, which hurts your future credit chances. As well as the reason you were rejected in the first instance, you now have an extra search on your credit file, which counts further against you when banks make their decision. You'll now have TWO recent searches on your file, and NO new cards. If you were unable to get credit before, it may be impossible for a while.
    
    Multiple rejected applications can mess up your score for up to a year as more applications mean more searches, which compounds the problem. If you haven't applied for a while, or have applied once and been knocked back, you should first check your credit reports, or see below to check your eligibility for these (and other) cards.

  Quick question

  Why am I being rejected?

  Banks radically changed the way they decide to lend money after the 2007 financial crisis and recession that followed. Essentially, they now want to take fewer risks with their cash – meaning if you used to get credit cards fairly easily, you may now struggle.

  Yet whether you're given new credit isn't a simple calculation based on how much you earn.

  Nor is it about some mythical 'universal credit rating' or blacklist. Lenders 'score' you to predict your likely behaviour, but these scoring systems are never published and differ from lender to lender, and product to product.

  The whole game of credit scoring is a convoluted one. To understand how it works, and what the banks judge you on, join MSE's revolutionary Credit Club, or read our full Credit Rating guide. Importantly, always check the information held about you with the three credit reference agencies is correct, as this plays a big part in lenders' decisions (you can do it for free).

  If you've been rejected by all and sundry, it's likely you've got a poor credit score or a problem with your credit history. Conversely, if you've always been accepted in the past and just been rejected once, it's possible you simply don't fit one particular card company's customer profile.

  If you've had the interest rate you pay on an existing credit card increased, read the Rate Jacking guide to rejecting these hikes.

• To protect your credit score use our eligibility calculator before applying to find which cards you're most likely to get

  The only way to know if you'll be accepted is to apply, yet each application marks your credit file. But our eligibility calculator shows the odds of you getting almost every card in this guide, so you can find the ones most likely to accept you, minimising applications.

  Once you've filled in the form, it's also worth checking the other tabs to see if there are any "good" credit cards that will accept you, before heading for one of these credit-rebuild cards.

  Quick question

  How does the eligibility calculator work?

  It uses a 'soft search', which is one you will see on your credit file but lenders usually don't (and where they do, they can't use the info), to give us an indication of your credit score. We then match this against lenders' criteria for acceptance so we can show the odds of you getting each card.

  Once you have this knowledge, it will allow you to make a smarter application. For example, say you have a much better chance of getting a card that's just one month shorter at 0%, you may want to go for that. Therefore, you're less likely to be rejected and less likely to need to apply elsewhere, which would add another mark on your credit file.

• Or join our Credit Club for a full credit health check, including your free Experian Credit Report, Affordability Score and Credit Hit Rate

  The new MSE Credit Club is a game-changer. For years the credit market has been shrouded in mystery but our revolutionary tool brings together the key components to give you the full picture, and crucially, what it means for your acceptance chances and how to boost your creditworthiness.

  A credit score alone isn't enough to borrow, as there are other factors at play (it's why many with perfect scores still get rejected). Our new Credit Club shows you...

  1. Free Experian Credit Report – your credit accounts and how you've managed them.
  2. Free Experian Credit Score – how lenders rate your past credit behaviour.
  3. MSE Affordability Score – how lenders assess if you can afford a product.
  4. Your Credit Hit Rate – how likely you actually are to be accepted when you apply.
  5. Credit Card & Loan Eligibility Calcs – what your odds are of getting specific top deals.
  6. How to improve your credit profile – we show where your profile's strong and weak, and how to improve it.

• Try to repay in full every month, but ensure you always repay AT LEAST the minimum to help improve your credit score

  If you're building or rebuilding a credit history, this is one of the most important things you can do. Paying on time and meeting all your commitments is likely to improve your credit score as it shows you can be trusted to repay so lenders are more likely to give you credit in future. So, every month you must pay at least the minimum monthly amount.

  If not, you can lose any promotional offer (eg, a 0% rate) and the credit card provider will report your missed payment to the credit reference agencies. You'll also be hit with a £12 fee for late payment each time it happens.

  Quick question

  How much should I aim to pay?

  Your aim should be to pay more than the minimum – unless you've pricier debts elsewhere, in which case focus max repayments on them. Minimum payments are designed to make debts last as long as possible, which you should try to avoid – see tips to beat this in Danger: Minimum Repayments.

• Check you actually need NEW credit – you may be able to use existing cards

  If you're after a card to reduce the cost of existing debts, first see if you can achieve the same using the plastic you already have. A special technique can allow you to reduce the interest you pay on outstanding debts without applying for new cards – read the full Credit Card Shuffle for more.

  After you've done it, you could have credit cards with no debt on. You should then check the APR on these if you require plastic to spend on. If your credit rating's a bit shabby, these rates could well be lower than anything you'll get on new cards you apply for from this guide.

  Quick question

  If I need to spend, what's the best option?

  If you need to spend on a card, it's best to get a 0% credit card for purchases. There are a couple in this guide which accept people with a history of poor credit management, or a short credit history. But you'll only get a maximum of six months at 0%, so use the time as a respite only, and budget to pay the card off at the end of the 0% period.

• NEVER withdraw cash on these cards

  It can be tempting to use these cards to get cash advances when you're short of ready money. Though know that repeated cash withdrawals on a credit card are a red flag to lenders. It's expensive to do, so credit card providers assume that anyone withdrawing lots on other cards is desperate for cash, so they're less likely to lend.

  On top of that, you'll pay a cash withdrawal fee, and interest from the moment you take the cash out until it's paid off, often at a higher rate than on spending.

  Quick questions

  Why do I pay interest on my cash withdrawal if I've paid it off in full?

  Unlike purchases, you normally don't get any interest-free period on cash withdrawals – even if you pay your balance off in full on your next statement date. You usually pay interest from the date of making the cash withdrawal until it's paid off.

  This means you'll most probably see an interest charge on the first statement after the cash withdrawal, which is the interest charged from the date you made the cash withdrawal until the date the statement was issued.

  However, you may also see interest charged on the following statement. There'll be a delay between your statement being drawn up and you paying it. It may be a couple of days, it may be a couple of weeks. But you'll be charged interest on the cash withdrawal until you pay it off.

  Does withdrawing cash on a credit card affect my credit score?

  Withdrawing cash on your credit card isn't usually a good idea. Each time you do it, it's noted on your credit record – and lenders may see it as a sign that you can't manage your finances.

  They often think you've withdrawn cash that way because you had no choice as you were in financial dire straits because your bank account was empty.

  Although withdrawing cash on your credit card isn't the end for your credit score. If all other accounts are up to date, and you're not maxed out on your cards, then – in isolation – credit card cash withdrawals aren't likely to tip the scales of future credit applications. But, if you don't need to withdraw cash on your credit cards, it's best not to take the risk.

  For more on this, read our mini-guide to withdrawing cash on a credit card (it also covers overseas withdrawals), and how it affects your credit record.

• You won't always get the advertised APR even if you're accepted for the card

  There's a catch to watch out for. Some card firms give those with lesser credit histories a higher APR on the card than the one advertised in big letters. Sadly, the law only requires that 51% of people accepted for the card get the advertised APR.

  So just because a card says it has a 34.9% representative APR doesn't mean that's the interest rate you'll get. However, use these cards right, and you shouldn't be paying interest, which would mean the rate you get shouldn't matter.

  Quick questions

  Is there any way to know what deal I'll get before I apply?

  Sadly, the only way to know what APR you'll get is to actually apply for the card (unless our eligibility calculator shows you're pre-approved, in which case you'll get the exact deal advertised).

  For other cards, it seems anecdotally that the higher you score in our eligibility calculator (which doesn't affect your credit score), the more chance you have of getting the headline APR deal – though this isn't a hard and fast rule.

  Why do lenders give some applicants worse deals?

  Lenders tell us they do this based on risk, so if you've a credit score that only just meets a card provider's minimum criteria, it's likely you'll be accepted for the card, but given a higher APR.

• If you can't get any of the cards in this guide – avoid borrowing

  If all your 'perfect matches' come with sky-high interest rates, it's best you do everything you can to avoid borrowing money. Try our full Money Makeover to cut down on every expense and possibly boost your income, and do a proper budget.

  If you're still struggling at this point, you may need to get professional debt help. For a step-by-step checklist of how to act, and a full listing of non-profit debt-counselling agencies, read our Debt Problems guide.