Credit cards for bad credit: How they can help

By UK CreditCards.com

Have you recently been refused a credit card because of your poor credit rating? Try not to worry too much. There are plenty of options open to you and alternatives you could consider.

declined

UK credit cards are one of the most popular ways to gain access to borrowed money. However, many consumers find that once they slip up with their payments and acquire a poor credit rating, accessing a new card is tough -- but not impossible.  

What options are there for consumers with bad credit?
There are credit cards for bad credit which have been specifically designed for those struggling to seek traditional forms of credit. These cards are beneficial for two reasons. They give you access to the credit you need, and they can help you improve your credit rating.

Competitive UK credit cards with low APRs and enticing promotions are generally only available to people who have an immaculate credit report and a history of being a reliable borrower. Bad-credit cards or credit-builder cards are a suitable choice if you have many missed payments in the past and have a poor history of managing credit responsibly. Taking out this type of credit card can help you improve your credit rating and give you a much better chance of being accepted for standard UK credit cards in the future.

How do these cards work?
Credit cards for bad credit give you the chance to prove to lenders that you are able to manage debt sensibly and can be relied upon to meet your minimum payments. If you use one of these credit cards on a regular basis and pay off your balance each month, you will start to demonstrate that you are capable of responsibly handling credit. Over time, this will improve your credit rating and qualify you for better UK credit cards in the future.

Why else should I have one?
It can sometimes be a struggle to get by without a credit card as you might need one to pay for items over the Internet. In addition, UK credit cards are often the recommended method of payment for larger, more expensive items. Purchases that cost between £100 and £30,000 are protected under Section 75 of the Consumer Credit Act 1974 and so if you purchase an item or service that is faulty or was misrepresented, you are not liable for the purchase. 

Are there any downsides?
Credit cards for bad credit history are an excellent vehicle to start improving your credit score, but there is a flipside. Credit cards for bad credit are a riskier proposition for a lender because they are lending to people who have mismanaged credit in the past. As a result, the interest rate on these credit cards is often much higher than for other credit cards because you have not yet demonstrated your capability and reliability. Also, there is rarely an interest-free period on credit-builder cards, unlike most standard credit cards.

If you decide that this type of card would be beneficial to you, it is important that you remember why you have it. Don't use it to borrow more than you can afford to repay each month as it will cost you a lot of money in interest charges. Simply use it to help you improve your credit rating by buying items that you can afford to pay for in cash and then paying the full balance on time each month.

Tip: Not all credit cards for bad credit history have the same interest rate or benefits, so ensure that you research the market thoroughly and compare the cards on offer.

(Article updated 8-11-2011. Originally published 5-25-2011.)

Updated: 11 August 2011