Sometime life gets messy and complicated and we find ourselves with a credit score that is not where we would like it to be. If you have low credit, you might find it difficult to get approved for credit cards.
Although you will not have nearly as many options, there is still hope for you and credit cards. Remember, once you build your credit you can then move onto an offer that has more features and benefits – such as a rewards program.
In Australia, consumers with bad credit will soon find that there are not many bank credit card offers available. A discussion with banks will quickly reveal that they do not have cards specifically designated for people with low credit. However, even if your credit is suffering, there are steps you can take and things you can do to raise your credit so that you will be eligible for credit cards.
How Can It Help and What You Should Do:
If you have bad credit but still want to apply for a few cards, it is important to apply for a credit card that does not have a high minimum criteria. Start small and build up. Not only will this increase your chance of approval, but it will also put you in position to slowly work towards your goals with the help of your credit card company.
Here are three points of emphasis:
- Use your card, wisely: Make sure you use your credit card. Receiving a credit card is one thing, but you are not going to build credit unless you actually use it.
- Don’t go over your credit limit: Maintain your account balance within the limits of your card. In other words, don’t spend more than you are allowed.
- Never make a late payment: This is one of the quickest ways to harm your credit as opposed to increasing your score and adding to your positive history.
Where to Turn
If you decide that it is not wise to apply for a credit card and you know you will not get approved at this time, there are still some other options as we’ll explore below.
We should state at this juncture that unfortunately, in Australia, and unlike the UK and USA, none of the big banks offer credit cards specifically for individuals with bad credit. Banks in Australia have traditionally been a lot more conservative than others, but on the whole this has been a good thing because it has meant less reckless lending.
Secured Credit Cards
If you’ve been searching on Google, you’ve probably heard of secured credit cards. This is a specific type of card that requires you to put down a deposit in exchange for credit. You have to pay more upfront but you will get the deposit back when you close the account. This is a great option for raising your credit score. However, these are currently not available in Australia.
Retail Store Card
Sometimes you can be approved for a retail store credit card even when you do not qualify for a regular credit card. They will do a credit check and there tend to come with higher interest rates, but it could be worth it if you really need to raise your credit. Choose a store that you already shop at so you are not adding extra costs onto your monthly budget and make sure you always pay your card off on the spot. Meaning, make your purchase with your store credit card then pay it off with your debit card.
When you apply, the bank will take your credit worthiness into account. In other words, how much of a risk are you? If the bank lends you money via a credit card, do you have a history that proves that you will pay it back?
Therefore, applying for a store card does come with a certain amount of risk involved. Your credit record could be sufficiently bad that you are declined, which will only make your credit even worse. Think carefully before applying for anything, store card or not.
Should I Use a Debit Card Instead?
As you know, a debit card is attached to your everyday bank account. You can use this the same as a credit card, however, you are only able to spend the money that you have.
While there is nothing wrong with using a debit card, at all, it is not the same as a credit card. First and foremost, this is not going to do anything for your credit since you are simply using money that is already yours.
The main benefit of using a debit card instead of a credit card is that you can never spend money you don’t have. That being said, there are drawbacks:
- No access to credit in the event of an emergency
- The inability to purchase items that you cannot afford right now, but could pay for when you are next paid
- You are not building your credit when you use a debit card
Again, these work just like a credit card (you can use them online and in stores), but they are very different. You have to top your account up with credit, much like you would do with a mobile phone. Once you have money on your card, you are free to spend it as you wish. This may sound very similar to a secured credit card, which it does, but using a prepaid card has no positive affect on your credit rating. They will help you stay out of debt though by controlling your spending, which is a good thing.
Tips for Right Now
Over time, you can increase your score through other means such as:
- Timely loan payments (mortgage, car, etc.)
- Pay off your debts every month
- Do not close unused credit card accounts
- Do not apply for lots of credit cards within a short period of time