How To Improve Credit Rating With Bad Credit Cards
How to improve credit scoring using bad or low requirement credit cards - Obstacles and Benefits explained
A bad credit rating may affect your ability to obtain further credit and this may last for up to 6 years on your credit history. However, fear not as this may not be the end of it all for you. Even though you may not be able to apply for a standard credit card due to bad credit rating, there are credit cards specifically targeted for people who wish to improve their credit rating.
Below is a step by step guide explaining how bad credit cards work (Bad Credit Rating Cards), how you can improve your credit rating using them and why it is effective all in a nutshell.
Why am I not eligible for a standard credit card if I have a bad credit rating/score
This is plainly because the lenders, which in this case are the credit card companies, view people with bad credit rating as a high risk investment. Due to the past credit scoring history, they are wary and are concerned that you may not be able to pay them back. This method of risk assessment can be perfectly normal in real world; nevertheless, there are ways to overcome this obstacle.
How does a bad credit rating card work?
There are many credit card companies out there who are willing to take the risk to lend money to people who they view to be high risk investments. By simply approving credit cards for people with bad credit rating/scoring, they are in a way making a risky investment with the concept of ‘higher risk = higher gain’
Having said that, be prepared to expect higher APR (Annual Percentage Rates – Explained) to be applicable to these credit cards. By charging you a higher rate of interest on your purchases, the credit card companies ensure they generate more revenue out of you. As a result, they tend to look at it as a high profit concept with no risk, no gain principle in their minds. On a standard credit card, you can expect anywhere between 14% to 22% interest charged on your outstanding balance. But on a bad credit card, some credit card companies will attach an APR of up to 40% which means almost double and in some cases triple the amount of profit they will make from simply charging interests. From a lenders point of view, this is a lucrative money making segment and you will be surprised to see how many credit card companies are willing to offer you a high APR credit card.
What are the pros and cons of bad credit rating cards?
Bad credit cards may not be bad at all because they help people with bad credit rating to rebuild and improve their credit scoring. With a higher APR that may be applicable to these credit cards, and a lower credit limit, there are certain downsides one might argue but once utilised properly; bad credit cards may be the quickest way to improve your credit scoring. You can start putting your small every day expenses on the credit cards and set up a direct debit/standing order from your bank account at the end of every month to pay off any outstanding balances. In this way, you are able to ensure that you do not miss any payments by mistake. In addition to that, by putting small every day expenses on the credit card, you also make sure that you are not spending more than you can afford to pay off. If you follow this procedure for 12 – 18 months, you will start to see changes in your credit rating immediately. The improvement in the credit rating may not be as quick as you would like it to be, but anything higher than what is deemed to be a bad score is better right?
Why do bad credit cards come with lower credit limit?
This is plainly because it takes time for the credit card companies to overcome their fears that you will be defaulting on your payments again. Therefore, expect to obtain a very low credit limit sometimes as low as $/£100 initially. In this case, be patient and start using the card for small purchases, pay your bills on time for 6 – 12 months and then ask to increase you credit limit. In most cases, you will get a higher credit limit with ease and if you repeat the request in another 6 months’ time, provided that you have been making payments on time, you will have no difficulty to increase the limit even further.
All of these require patience and an impeccable eye on the monthly payments and an organised personal financial plan. Improving your credit rating is not an easy task, especially if your credit rating has seen its lowest points and you are unable to apply for any standard credit cards. However, improving your credit rating with bad credit cards may be one of the easiest and fastest ways of getting your finances back on track and start afresh!
