If you don’t take care of their finances, how hard will it be to get a credit card with bad credit? Learn what things can affect your credit and how it may be very possible to get a credit card even with bad credit.
Can a Person Get a Credit Card with Bad Credit?
There was a time awhile back when it was almost virtually impossible to get a credit card, or any type of credit for that matter, if you had bad credit. For awhile the financial crisis experienced around the country made credit availability very limited. Banks and financial institutions were tightening their belts and only giving credit to borrowers with very good credit.
Once the credit card markets started to open up again, it became easier for those with less-than-desirable credit to get credit cards. More and more credit cards became available to people with poor credit. Although credit card limits and interest rates are based mostly by the applicant’s credit scores, the applicant may still get a card.
The downside is that the card may come with high interest rates and a low credit limit, at least until the consumer can prove his or her creditworthiness by continuously making the payments on time.
What Type of Credit Cards are Available for Those with Bad Credit?
Today there are various credit cards available to consumers with bad credit, both unsecured and secured. The secured credit is very common for consumers with poor credit. With a secured card, the consumer must make a deposit, which goes into an account. The amount of the deposit is generally the amount of the credit limit.
Secured credit cards are an ideal way for consumers to rebuild their credit. Once the credit scores are better, the individual can get an unsecured credit card, close out the secured card and get the deposit back. There are other credit cards for consumers who have bad credit; these credit cards are actually referred to as bad credit credit cards.
What is the Best Type of Credit Card for a Person with Bad Credit?
People with bad credit sometimes have such a difficult time getting a credit card that when they do find a credit card company that will issue them a card, they grab the first card they can get without reading the fine print. This can be a bad idea because often these cards result in the following.
• Very high interest rates
• Low credit limits
• High annual fees that eat up a lot of the credit limit
• Possible over-the-limit fees resulting from the other fees
Despite their eagerness to get credit cards, consumers with bad credit should still be selective when choosing a credit card. Secured cards are often the best option because they may offer interest rates lower than unsecured cards.
With the credit card industry extending their limits to include those with bad credit, consumers would benefit by researching cards to find the best one for their financial situations. However, they should not apply for several cards with the hopes of getting approved for one because each new inquiry into his their credit report is lowering their credit scores.
How Your Credit Scores are Calculated
Consumers are often confused as to why their credit scores are not as high as they'd hoped despite paying all their debts on time. This is because credit scores are calculated by more factors than just how diligently they are about paying their bills on time. Here are the factors that FICO uses when calculating a consumer’s credit and how important each part is.
• Payment history – Thirty-five percent – Paying bills on time is the best thing a consumer can do to have good credit.
• Amounts owed – Thirty percent – The more available credit a consumer has, the better it will help their scores.
• Length of credit history – Fifteen percent - Paying on the same credit card for several years will do more for credit scores than closing it and opening several new cards.
• New credit – Ten percent – Opening up new credit lines may have a lender believing the consumer is getting additional credit.
• Types of credit used – Ten percent – When a consumer to have a mix of credit such as credit cards, loans, mortgage, etc. rather than several of just one it tells a creditor more about how a consumer handles different types of credit.
What Things Affect Your Credit Scores
Although consumers may be aware of the different things that determine what their credit scores are and what role they play, they may think they know what to do to improve their scores. However, it’s an even more complicate process than what one might think.
In addition to specific things contributing to the credit scores given by FICO, there are also other factors that affect credit scores. In other words, some things that are not only more damaging to a person’s credit but also stay on their credit report for a longer period of time.
• Late payments
• Closed accounts
• Charged-off accounts
• Collection accounts
• Tax liens – These may stay on a credit report indefinitely.
Another thing consumers don’t realize is how harmful certain inquiries into a credit report can be. There are “soft inquiries” and “hard inquiries”. For instance, if a person already has a credit card with a company and the company does an inquiry into the person’s credit perhaps for the purpose of increasing their credit limit, this is a soft inquiry and doesn’t hurt their credit scores.
When a person applies for new credit and the company does an inquiry into their credit history for the purpose of new credit, this is a hard inquiry and shows up on the person’s credit history. When several hard inquiries show up on a person’s credit report in a short amount of time, it can damage the person’s credit and make it even more difficult to get new credit.
This is why it’s very important that consumers trying to get credit cards do NOT apply with several credit cards companies in a short period of time. All it will accomplish is to give them even worse credit. Although it may seem like a vicious cycle, there is light at the end of the tunnel for consumers with bad credit.