Credit Cards for People With Bad Credit

If you’re looking to build your credit score, a credit card for bad credit could be something to think about.

In our guide, Little Loans explains all about bad credit credit cards; how they work; how they could help boost your credit score; and if there are any alternative options to consider.

What is a bad credit credit card?

As the name suggests, a bad credit credit card is a credit card which has been designed for people with bad credit, or no credit history at all, who want to establish or build their credit score. You may hear bad credit credit cards being referred to as credit builder credit cards.

What’s the difference between no credit history and bad credit history?

Having no credit history is very different to having bad credit, although both could make it difficult to be considered for borrowing.

Bad credit history is often caused by poor money management or past issues when managing credit commitments, although it could also be caused by external factors, such as fraud and identity theft.

No credit history is also known as having a ‘thin’ credit file. Simply put, this is when there is little information on an individual’s credit record. This is common in people who have never applied to borrow money or paid bills in their name.

How does a credit builder credit card work?

1. Use your credit builder credit card to make a necessary purchase that you can afford to repay.
2. Make at least the minimum repayment amount each month until your balance has been cleared.
3. Your credit card provider will report your repayment information to the credit reference agencies (CRAs), and if managed positively, your credit score could increase over time.

Please note that a credit builder credit card could produce the best results when used alongside other credit boosting methods, which we’ll talk about in more detail further down the page. It’s also important to manage any other existing credit commitments effectively.

How else could a credit card for bad credit affect my credit score?

A credit builder credit card, like any credit product, will affect your credit score. How you manage your bad credit credit card is a major factor in how your score will be impacted.

• Stay within your credit limit. This is the overall amount of money you’ve been approved to borrow. Your credit limit should never be used as an incentive to spend money when you don’t need to or can’t afford to repay. Going over your credit limit could harm your credit score.
• Try to keep your credit card utilisation as low as possible. Your credit card utilisation is the amount of money that you’re using of your overall credit limit and is shown as a percentage. If you’re hoping to improve your credit score, the lower your credit card utilisation, the better.
• If you can help it, avoid using your credit card to withdraw money from a cash machine. This is known as a cash advance and could lower your credit score as it suggests poor money management.
• Making a late repayment, or missing one altogether, will damage your credit score. It’s crucial to keep on top of your repayments. Setting up a Direct Debit could help you manage this.

Bad credit loan vs bad credit credit card

I’ve got bad credit; should I apply for a credit card or a loan?

This will depend on your personal situation.

A loan is generally used to cover an unexpected cost, such as a broken boiler or car repairs, while people usually apply for a credit builder credit card with the intention of working towards a healthier credit position.

Of course, you could use a credit builder credit card to pay for an urgent expense, but as discussed, this type of credit card typically comes with a more manageable starting credit limit, which might not be enough to cover the cost.

The most important thing is to be certain that you can afford to repay the money you borrow, whether that’s using a credit card or a loan.

Can I apply for a bad credit credit card?

If you’ve found a credit card for people with bad credit that you feel could be a suitable option for you, you’ll need to make sure that you meet the provider’s eligibility criteria before you make an application.

Eligibility criteria can differ between lenders, but typically, you could apply for a bad credit credit card if you:

• Are over the age of 18;
• Are a UK resident;
• Have a UK bank account and a valid debit card; and
• Have a regular source of income paid into your bank account.

How to apply for a credit builder credit card

The process of applying for a credit card for bad credit usually involves the following stages:

1. Fill out your chosen provider’s online form.
2. The credit card provider will complete a creditworthiness assessment. This is a mandatory process, with guidelines set by the Financial Conduct Authority (FCA), and is carried out to protect customers from unaffordable borrowing. A creditworthiness assessment will include a hard search or Open Banking.*
3. If you pass the provider’s checks, you’ll be offered the credit builder credit card.

At some point during the application process, the provider will send you a credit agreement. This will include key information such as your interest rate, credit limit, and the terms and conditions of your bad credit credit card. You should read through this carefully.

*A hard search will be visible on your credit file for up to 12 months, and multiple hard searches could cause your credit score to decline.

Three ways you could improve your credit score

• Register to vote. Being on the electoral roll could make it easier for potential lenders to confirm your personal information.
• Get into the habit of checking your credit report. This will help you stay on top of your accounts and spot any incorrect information. Errors on your credit report could lower your credit score.
• Pay your bills on time and in full each month.

I’ve fallen behind on my credit card repayments; what should I do?

If you’re struggling to make your credit card repayments, you should contact your provider. They will work with you and discuss any options that may be available to help relieve some of the pressure.

If you need advice on money or debt, please know that the following charities and organisations offer free, confidential support: StepChange, MoneyHelper, Citizens Advice, and National Debtline.

Could I get a credit card with Little Loans?

Little Loans is a credit broker, and we only work with lenders of personal loans. However, our sister company thimbl.com does offer a credit card for poor credit.

If it’s a short-term loan you’re after, we could help you search for a suitable option, whatever your credit score. The lenders on our panel offer loans from £100 to £10,000, with repayment terms between 3 and 60 months, depending on the amount of money you apply to borrow.

A number of lenders on the Little Loans panel specialise in loans for people with bad credit, and they could be willing to consider your application.