Having bad credit can make it hard to achieve your financial goals, such as buying a car, a house, or even a phone. Bad credit can also affect your ability to get loans, credit cards, insurance, and even jobs. But what is bad credit and how can you improve it?
Bad credit is a term that describes a low credit score or a poor credit history. A credit score is a number that summarizes your creditworthiness, or how likely you are to repay your debts on time. A credit history is a record of your past and current credit accounts, such as loans, credit cards, and bills.
Different credit scoring models use different scales and factors to calculate your credit score. However, some of the most common ones are FICO and VantageScore, which range from 300 to 850. Generally, a score below 580 is considered bad, a score between 580 and 669 is fair, a score between 670 and 739 is good, a score between 740 and 799 is very good, and a score above 800 is exceptional.
Table of Contents
Factors Affecting Credit Score
Your credit score and history are influenced by several factors, such as:
- Your payment history: This is the most important factor, as it shows whether you pay your bills and debts on time and in full. Late or missed payments can lower your score and damage your history.
- Your credit utilization: This is the ratio of your credit card balance to your credit limit. It shows how much of your available credit you are using. A high credit utilization can indicate that you are overextended and may have trouble paying back your debts. A low credit utilization can show that you are managing your credit well. A good rule of thumb is to keep your credit utilization below 30% on each card and overall.
- Your credit age: This is the average length of time you have had your credit accounts. It shows how long you have been using credit and how experienced you are. A longer credit age can boost your score, as it demonstrates a longer track record of responsible credit use. A shorter credit age can lower your score, as it indicates a lack of credit history.
- Your credit mix: This is the variety of credit types you have, such as credit cards, loans, mortgages, etc. It shows how well you can handle different kinds of credit. A more diverse credit mix can improve your score, as it suggests that you can balance different credit obligations. A less diverse credit mix can lower your score, as it implies that you are limited in your credit experience.
- Your credit inquiries: This is the number of times you apply for new credit or check your credit score. There are two types of credit inquiries: hard and soft. A hard inquiry occurs when a lender or creditor checks your credit report to make a lending decision, such as when you apply for a loan or a credit card. A soft inquiry occurs when you or a third party checks your credit report for informational purposes, such as when you check your own score or when an employer or landlord does a background check. A hard inquiry can lower your score temporarily, as it indicates that you are seeking more credit and may be a higher risk. A soft inquiry does not affect your score, as it does not reflect a credit application.
Disadvantages of Bad Credit Card
If you have bad credit, you may face several challenges, such as:
- Higher interest rates and fees: Lenders and creditors may charge you more to borrow money, as they see you as a riskier borrower. This can make your debt more expensive and harder to pay off.
- Lower credit limits and loan amounts: Lenders and creditors may limit how much money they are willing to lend you, as they want to reduce their exposure to potential losses. This can limit your purchasing power and financial flexibility.
- Rejection or difficulty getting approved for credit or loans: Lenders and creditors may deny your applications for credit or loans, as they do not want to take on the risk of lending to you. This can prevent you from accessing the credit you need for your personal or business needs.
- Higher insurance premiums: Insurance companies may check your credit score and history to determine your insurance risk, or how likely you are to file a claim. If you have bad credit, you may have to pay more for your insurance coverage, such as auto, home, or life insurance.
- Difficulty renting a home or getting utilities: Landlords and utility companies may check your credit score and history to assess your reliability as a tenant or customer. If you have bad credit, you may have trouble finding a place to live or getting services such as electricity, gas, water, phone, or internet. You may also have to pay higher deposits or fees to secure your rental or utility contracts.
- Difficulty getting a job or a security clearance: Some employers and government agencies may check your credit score and history as part of the hiring or screening process. If you have bad credit, you may have trouble getting a job or a security clearance, especially if the position involves handling money, sensitive information, or high-level responsibilities.
As you can see, having bad credit can have serious consequences for your financial well-being and quality of life. That’s why it’s important to take steps to improve your credit score and history as soon as possible. One of the ways you can do that is by getting a credit card that is designed for people with bad credit.
How Can a Credit Card Help You Build Bad Credit?
A credit card is a type of revolving credit that allows you to borrow money up to a certain limit and pay it back over time. You can use a credit card to make purchases, pay bills, or transfer balances from other accounts. You can also use a credit card to build or improve your credit score and history, as long as you use it responsibly.
A credit card can help you build bad credit in several ways, such as:
- Establishing a payment history: By paying your credit card bill on time and in full every month, you can show lenders and creditors that you are a reliable and trustworthy borrower. This can boost your credit score and history, as payment history is the most important factor in credit scoring models. A good payment history can also offset some of the negative effects of past delinquencies or defaults on your credit report.
- Reducing your credit utilization: By keeping your credit card balance low compared to your credit limit, you can lower your credit utilization ratio and improve your credit score and history. A low credit utilization ratio shows that you are not overusing your credit and that you have enough financial capacity to handle your debt. A high credit utilization ratio, on the other hand, can hurt your credit score and history, as it indicates that you are maxing out your credit and that you may have trouble paying back your debt.
- Increasing your credit age: By keeping your credit card account open and active for a long time, you can increase your credit age and enhance your credit score and history. A long credit age shows that you have a lot of experience and stability in using credit. A short credit age, on the other hand, can lower your credit score and history, as it suggests that you are new to credit or that you have closed your old accounts.
- Diversifying your credit mix: By adding a credit card to your credit portfolio, you can diversify your credit mix and improve your credit score and history. A diverse credit mix shows that you can handle different types of credit, such as revolving and installment. A less diverse credit mix, on the other hand, can lower your credit score and history, as it implies that you are limited in your credit skills.
- Correcting your credit report errors: By getting a credit card and monitoring your credit report regularly, you can catch and correct any errors or inaccuracies that may be hurting your credit score and history. For example, you may find that your credit report contains outdated or incorrect information, such as a wrong address, a closed account, or a fraudulent transaction. By disputing these errors with the credit bureaus, you can get them removed from your credit report and improve your credit score and history.
However, not all credit cards are the same, and not all of them are suitable for people with bad credit. If you have bad credit, you may have trouble getting approved for a regular credit card, or you may get a card with high interest rates, fees, and penalties. That’s why you need to look for a credit card that is specifically designed for people with bad credit.
What Are the Best Credit Cards for Building Bad Credit?
There are different types of credit cards that can help you build bad credit, depending on your preferences and needs. Some of these credit cards require a security deposit, while others do not. Some offer cash back, rewards, or dining benefits, while others have no fees or low interest rates. Here are some of the best credit cards for building bad credit in Australia and the USA.
Australia
Latitude 28° Global Platinum Mastercard:
This credit card has no annual fee, no foreign transaction fee, no currency conversion fee, and no international ATM withdrawal fee. It also offers complimentary travel insurance and a concierge service. However, it has a high interest rate of 21.99% p.a. on purchases and cash advances, and a high cash advance fee of 3% or $4, whichever is greater. To qualify for this card, you need to have a good credit rating.
Coles Low Rate Mastercard:
This credit card has a low annual fee of $58, a low interest rate of 12.99% p.a. on purchases and cash advances, and a low cash advance fee of 3% or $1.95, whichever is greater. It also offers up to 55 days of interest-free period on purchases, and a 0% p.a. balance transfer rate for 6 months. However, it has a foreign transaction fee of 2.5% and a late payment fee of $20. To qualify for this card, you need to have a fair to good credit rating.
ANZ First Visa Credit Card:
This credit card has a low annual fee of $30, a standard interest rate of 20.24% p.a. on purchases and cash advances, and a standard cash advance fee of 2% or $4, whichever is greater. It also offers up to 44 days of interest-free period on purchases, and a 0% p.a. balance transfer rate for 18 months. However, it has a foreign transaction fee of 3% and a late payment fee of $20. To qualify for this card, you need to have a fair to good credit rating.
NAB Low Rate Card:
This credit card has a low annual fee of $59, a low interest rate of 12.99% p.a. on purchases and cash advances, and a low cash advance fee of 2% or $2.50, whichever is greater. It also offers up to 55 days of interest-free period on purchases, and a 0% p.a. balance transfer rate for 20 months. However, it has a foreign transaction fee of 3% and a late payment fee of $15. To qualify for this card, you need to have a fair to good credit rating.
Heritage Bank Gold Low Rate Credit Card:
This credit card has no annual fee, a low interest rate of 11.80% p.a. on purchases and cash advances, and a low cash advance fee of 2% or $2, whichever is greater. It also offers up to 55 days of interest-free period on purchases, and a complimentary travel insurance. However, it has a foreign transaction fee of 3.3% and a late payment fee of $10. To qualify for this card, you need to have a good credit rating.
Bankwest Zero Platinum Mastercard:
This credit card has no annual fee, no foreign transaction fee, no currency conversion fee, and no international ATM withdrawal fee. It also offers up to 55 days of interest-free period on purchases, and a complimentary travel insurance, concierge service, and purchase protection. However, it has a high interest rate of 17.99% p.a. on purchases and cash advances, and a high cash advance fee of 2% or $4, whichever is greater. To qualify for this card, you need to have a good credit rating.
HSBC Low Rate Credit Card:
This credit card has a low annual fee of $79, a low interest rate of 13.25% p.a. on purchases and cash advances, and a low cash advance fee of 2% or $4, whichever is greater. It also offers up to 55 days of interest-free period on purchases, and a 0% p.a. balance transfer rate for 20 months. However, it has a foreign transaction fee of 3% and a late payment fee of $30. To qualify for this card, you need to have a fair to good credit rating.
USA
Capital One Platinum Credit Card:
This credit card has no annual fee, no foreign transaction fee, and no penalty APR. It also offers access to a higher credit line after making your first five monthly payments on time, and a credit monitoring tool to track your credit score and history. However, it has a high interest rate of 26.99% variable on purchases and cash advances, and a high cash advance fee of 3% or $10, whichever is greater. To qualify for this card, you need to have a fair to poor credit rating.
Secured Credit Card:
This credit card has no annual fee, no foreign transaction fee, and a low interest rate of 10.99% variable on purchases and cash advances. It also offers cash back rewards on every purchase, a free FICO score, and a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year. However, it requires a security deposit of at least $200, which will determine your credit limit. It also has a high cash advance fee of 5% or $10, whichever is greater. To qualify for this card, you need to have a poor to fair credit rating.
Credit One Bank Platinum Rewards Visa:
This credit card has an annual fee of $0 to $99, depending on your creditworthiness. It also offers 5% cash back rewards on eligible purchases, such as gas, groceries, internet, cable, satellite TV, and mobile phone services, up to $5,000 per year. It also offers a free credit score, a credit line increase opportunity, and a zero fraud liability. However, it has a high interest rate of 23.99% variable on purchases and cash advances, a high cash advance fee of 8% or $5, whichever is greater, and a high foreign transaction fee of 3%. To qualify for this card, you need to have a poor to fair credit rating.
Indigo Platinum Mastercard:
This credit card has an annual fee of $0 to $99, depending on your creditworthiness. It also offers pre-qualification without affecting your credit score, a free VantageScore, and a custom card design. However, it has a high interest rate of 24.9% variable on purchases and cash advances, a high cash advance fee of 5% or $5, whichever is greater, and a high foreign transaction fee of 1%. To qualify for this card, you need to have a poor to fair credit rating.
How to Choose and Use a Credit Card for Building Bad Credit?
Choosing and using a credit card for building bad credit can be a smart and effective way to improve your credit score and history, as long as you follow some simple guidelines. Here are some tips on how to choose and use a credit card for building bad credit:
Compare different credit cards and choose the one that suits your needs and budget. Consider factors such as fees, rates, rewards, credit reporting, and credit limit. You can use online tools such as Bing to search and compare different credit cards for building bad credit in Australia and the USA.
- Apply for the credit card that you have chosen and provide accurate and honest information. Make sure you meet the eligibility criteria and the minimum requirements. You can use online tools such as Bing to check your credit score and history before applying for a credit card.
- Once you get approved for the credit card, activate it and start using it for your everyday purchases and expenses. However, do not use it for unnecessary or frivolous spending, as this can lead to debt and damage your credit score and history.
- Pay your credit card bill on time and in full every month, or at least pay the minimum amount due. This will help you establish a good payment history, avoid late fees and penalties, and reduce your interest charges. You can use online tools such as Bing to set up reminders and alerts for your credit card payments.
- Keep your credit card balance low and your credit utilization ratio below 30%. This will help you lower your credit risk, increase your available credit, and improve your credit score and history. You can use online tools such as Bing to track your credit card balance and credit utilization ratio.
- Monitor your credit card account and your credit report regularly and check for any errors or fraud. If you find any mistakes or suspicious activities, report them to your credit card issuer and the credit bureaus as soon as possible. You can use online tools such as Bing to access your credit report and credit score for free.
- Be patient and consistent with your credit card use and payments, and do not expect to see immediate results. Building bad credit takes time and effort, but it is worth it in the long run. You can use online tools such as Bing to measure your progress and see how your credit score and history improve over time.
FAQs
Here are some frequently asked questions and answers about credit cards for building bad credit:
Q: What is the difference between a secured and an unsecured credit card?
A: A secured credit card is a type of credit card that requires a security deposit, which acts as collateral and determines your credit limit. An unsecured credit card is a type of credit card that does not require a security deposit, but may have higher fees, rates, and lower credit limits.
Q: What is the difference between a prepaid and a debit card?
A: A prepaid card is a type of card that allows you to load money onto it and use it like a credit card, but without borrowing money or affecting your credit score. A debit card is a type of card that is linked to your bank account and allows you to withdraw money or make purchases, but also without borrowing money or affecting your credit score.
Q: How can I increase my chances of getting approved for a credit card for building bad credit?
A: You can increase your chances of getting approved for a credit card for building bad credit by improving your credit score and history, paying your bills and debts on time, reducing your debt and credit utilization, and applying for a credit card that matches your credit profile and income.
Q: How can I avoid getting into debt with a credit card for building bad credit?
A: You can avoid getting into debt with a credit card for building bad credit by using it responsibly, spending within your means and budget, paying your credit card bill on time and in full, keeping your credit card balance low, and avoiding unnecessary fees and charges.
Conclusion
In conclusion, having bad credit can have negative impacts on your financial and personal life, but it is not the end of the world. You can use a credit card for building bad credit to improve your credit score and history, and enjoy the benefits of credit. However, you need to choose and use a credit card for building bad credit wisely and carefully, and follow the tips and advice in this guide. You can also use online tools such as Bing to search and compare different credit cards for building bad credit in Australia and the USA, and to monitor and manage your credit card account and your credit report. By doing so, you can achieve your financial goals and dreams, and live a better and happier life.