Search: Credit cards for those with bad credit ratings
- Check your credit hasn't been tampered with
- Tips on avoiding identity theft
- Check the best current mortgage deals
In the years BCC - Before Credit Crunch - credit cards were the easy way to manage your borrowing.
If the interest rate went up or you wanted a higher spending limit, you simply got another card or shifted the balance to a different card issuer. If you were well-organised, that is.
Today, things are very different. Major banks are turning down more than half of all credit card applications and interest rates have risen by an average of three per cent of purchases and seven per cent on cash withdrawals.
Meanwhile, by April 2008, 1.8 million cardholders had their spending limits reduced by an average of £1,680 as banks slashed more than £3 billion off the amount they made available on plastic.
So what do you do if you want or need a new credit card, a balance transfer or simply a new way of managing debt? Ask yourself these questions and you may find an answer.
Do you really want a zero per cent balance transfer?
A zero per cent balance transfer may sound tempting but you're only an ideal candidate if you’re going to pay off the amount you owe within the time of the zero per cent offer. Don't add new spending to the balance if you can avoid it - it can often be repaid only after you've cleared the original debt, which means you could be racking up huge interest in the meantime.
And, of course, there aren't many of these deals available. They tend to go to the people with the best credit ratings.
What if I need more time to repay what I owe?
There are cards out there designed for people like you who are going to take more than the normal six to 15 months to clear their balance. These cards offer a steady, low APR over time. Again, don't be tempted to add to the debt or you could still be making repayments when the next economic cycle of boom and bust comes around.
Have you spoken to your current card issuer?
Sometimes, all you have to do to get a better deal is to ask nicely, so talk to your current lender, explain what you want to achieve and suggest you may have to move if they can't help. If your credit history is good enough, they may be prepared to do a deal on the interest rate or offer you some other reward for staying put.
Do you want to keep on spending?
If you pay off your balance in full every month, look for a card with an attractive set of rewards linked to spending – air miles, cash-back or loyalty points.
If you know you will pay interest on an outstanding balance, look for the lowest possible APR – annual percentage rate of interest – but be sure to ask for a specific quote. As usual, the best offers tend to go to the people with a steady record of making repayments on time and in full.
Have you read the small print?
It may be boring but you must. Look for annual fees, penalty charges for late payments and balance transfer fees, which currently stand at around three per cent of the amount your transfer.
These could make a new deal uneconomic, especially once your time and trouble in shifting to a new card is taken into consideration.
Have you done your research?
Most cards are targeted at a specific group of people and if you don't fit the profile, you won't get the deal you want. To see what you might be offered, try visiting financial comparison sites that match your details to available credit cards – there are almost 250 at the moment, so there should be something to suit you.
How's your credit report?
Card companies have always tried not to lend more money than people can comfortably repay and they're particularly cautious at the moment.
They use two main sources of information when they decide whether to make you an offer and what conditions - such as interest rates - to set. The first is your application form. The second is your credit report, which is the personal history of your credit accounts, including cards, loans and mortgages.
It includes your repayment track record and information such as details of unpaid debts, IVAs or bankruptcies. If there's a trail of missed repayments or it's obvious that you're already overstretched, you're more likely to be rejected. It's free to see your Experian credit report.
What if my credit history isn't great?
It's better to hold off making any new applications until you've spruced it up. Quick fixes include correcting any errors or discrepancies, closing down any accounts you no longer use and identifying your most expensive borrowings and rolling them up into a single, less expensive loan.
You should also register to vote - lenders use the electoral roll as a precaution against fraud and to verify that you live at the address provided. If unusual circumstances explain any financial problems - for example, you had an accident and therefore missed a few repayments - you can get a note added to your credit report if you contact the credit reference agency that holds your report with proof.
Why not make a few applications and choose the best offer?
Not a good idea. If you fire off lots of applications at once, they'll leave traces - known as searches - on your credit report. Lots of searches could depress a credit score and could make lenders think you're desperate for money or even that a fraud is being planned.
Can I apply now?
You should be really well-prepared by now. Don't lose hope if you are rejected – instead, ask the card company why you were turned down. Then you can put things right before you apply again. Remember to check that your credit history is up to date and accurately reflects your circumstances before you do.
It can change as you make financial life changes, so you should always ensure that everything's straight before applying for any form of credit.
Improve your rating: To view your personal credit information that lenders are currently basing their credit decisions on, apply now for a free online credit report. Click here for a free 30-day trial and a free copy of your Experian credit report
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