How credit cards for bad credit can improve your credit rating
Posted January 18th, 2009 If you get stuck in the cycle of bad credit, it can be really difficult to get out. If you do have a bad credit rating, then you can only get loans with higher interest rate, to offset the risk of giving you credit. These higher rates make it more difficult to pay your minimum balances on time, which then has a negative effect on your credit rating.
If you’re stuck in the cycle I’ve described above, don’t give up. With patience and hard work, you can rebuild your credit rating, by using credit cards for bad credit.
Credit card companies assign risk values based on your credit score. The assumption that they make is that for every range of credit scores, X% of people will default on their loans. So in order to ensure they make a profit, they increase or decrease the rates they charge; people with excellent credit ratings will get charged less for their credit cards, as they provide the companies less risk of defaulting, conversely people with lower credit ratings, will get charged more for their credit cards.
For the people with the lowest credit ratings, there are essentially two options:
- Credit cards for Bad Credit
- Prepaid credit cards
Credit cards for Bad Credit
Credit cards for bad credit are cards which exist with a high interest rate, such as the Vanquis Visa Card, to offset the risk of giving out credit.
Prepaid credit cards
Prepaid credit cards have no credit facility as such; they don’t allow you to borrow money, instead they function a bit like bank accounts, only allowing you to spend the money that is put on the card. While these don’t offer credit, some of them, such as the cashplus Gold MasterCard provide a facility to contribute towards rebuilding your credit rating.
As you make regular payments on time, paying off as much as possible each month, your credit rating will improve. It will take some time, depending on how poor your rating is, but each month, if you keep behaving well, your rating will improve. It is also very important to stay up to date on all your other bills, including rent, gas & electricity. We highly recommend setting up a direct debit facility on your account to prevent any payments from being missed.
After you’ve done this for a while, your credit rating should have improved sufficiently to allow you to have a better, unsecured credit card. If you do apply for an unsecured credit card, don’t make the mistake of slipping into bad habits and making late payments, or all your hard work will be undone.
If you keep this up, year after year, your credit rating should continue to rise. Eventually your credit card will allow you to qualify for loans and so forth. But again, don’t undo all your hard work by slipping into bad habits.
A history of continuous credit improvement benefits your score; make sure you use your older cards every now and again to keep their records active.
Aside from the benefits directly to your credit rating, improving it can save you a lot of money, as those with the highest credit scores get loans at the lowest rates.
People who viewed this Page also viewed these Pages
Leave a Comment
Comparison of Top 10 Credit Card Offers
| Credit Card | Card Details | Interest Rate | Cash Advance Rate | Balance Transfer Rate | Annual fee | Interest free days | ||
|---|---|---|---|---|---|---|---|---|
 Halifax All in One Credit Card |
The Halifax All in One credit card offers a great introductory rate, and is perfect for saving you money now as well as in the future. | 15.9% APR | 27.95% p.a. (variable) | 0% for 9 months | No Annual Fee | 59 Days interest free |
 |
|
 Virgin Credit Card |
As well as a great rate, the Virgin Credit Card comes with:
|
16.6% APR (variable) | 27.9% p.a. (variable) | 0% for 16 Months (2.98% fee on balance transfers) | No Annual Fee | 50 days on card purchases |
|
|
 Capital One Classic Visa |
This card is designed for people with bad credit ratings, this is why the rate is quite high. |
Typical 34.9% APR variable | 34.9% APR | 34.9% APR | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
|
|
|
As well as earning Flying Club miles which you can spend on brilliant rewards like flights, upgrades, car hire and more, a Virgin Atlantic Credit Card gives you up to 46 days interest free on card purchases. |
17.9% APR typical rate | 20.9% p.a. (variable) | 0% for 6 months (2% handling fee) | No Annual Fee | Up to 46 days on card purchases only. |
|
|
|
The Virgin Prepaid MasterCard from Virgin Money is a prepaid Mastercard that you can add funds to, and use these funds for normal purchases. |
N/A | N/A | N/A | N/A | N/A |
|
|
|
5% cashback on purchases in your first three months (up to £4,000 of spend). Thereafter, earn 0.5% on the first £3,500, 1% on £3,501 to £10,000, and 1.5% after £10,001. |
18.9% p.a. | 27.9% p.a. | 18.9% p.a | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
|
|
|
Vanquis Visa Card is designed for people with no credit history or who have previously had bad debt. Representative 39.9% APR (variable) |
Representative 39.9% APR (variable) | 39.9% | N/A | No Annual Fee | Up to 56 days on card purchases only |
|
|
|
The award winning prepaid card with no credit check or bank account needed. | Funds in your Account will not earn interest | Prepaid only - N/A | Prepaid only - N/A | £59.40 p.a. (£4.95/month) | Prepaid only - N/A |
|
