What is a less than perfect credit history?
This doesn't necessarily mean you're a bad borrower. A low credit score will, of course, be triggered by credit problems, but it could be caused by any one of the following reasons.
- You have had little credit so far. Perhaps you have an overdraft but no credit cards, credit agreements or personal loans.
- You have never had any credit before.
- You're a student and you don't have a regular income. (You could apply for a credit card that is specifically aimed at people in higher education.)
- You have recently moved to the UK or returned to the UK having lived abroad
- You have a low income. Perhaps you work part-time or you're retired.
- You're self-employed and you find it difficult to prove a regular income.
If you have little or no credit already, the chances are most credit card companies will reject you. That's simply because they can't assess whether you're creditworthy. Since there's no real track record of how good you are at keeping on top of your debt commitments, you're considered a higher risk.
There's such a high demand for credit these days, card companies can afford to cherry pick the best applicants. So those of you with a low credit score may find it difficult to get accepted for a mainstream credit card.
But what can you do about it?
Before you even think about the alternatives, check out your credit report first to get a better idea of how your credit history really looks. There's a chance it may not be as bad as you think.
But if your worst fears are confirmed, don't panic. Consider credit builder credit cards, which are especially designed for people who want to strengthen their credit history.
Remember, you should only apply for a so-called 'high risk' credit card if you really have to. Don't repeatedly go for mainstream cards, only to get turned down time and time again. Numerous rejected applications will put even more black marks on your credit report.
The first thing you may notice about these card is their horrendously high APRs (up to 39.9% on our current best buy table). True, these cards don't seem attractive on the surface, but they can serve an important purpose if you use them properly.
The idea is you spend a little on the card every month and then make absolutely sure you keep within your credit limit and repay your balance in full every single month. That way you'll escape the ridiculously high interest rate.
Once you have around a year's good behaviour behind you, this will help to repair your tarnished credit history -- even if you have defaulted on credit repayments in the past. And if you're new to credit, by following this pattern, you'll gradually build up a good credit history.
That should be sufficient to help youstand a better chance of being accepted for best buy standard credit cards. You could then enjoy benefits such as 0% balance transfers and interest-free spending.
So, on a final note, it's important you don't think of these 'high-risk' credit cards as a way to borrow money, but instead as an excellent way of improving your credit rating.
You can sign up for a 30-day free trial of your Experian credit report and credit score through lovemoney. If you don't want to pay a monthly subscription, remember to cancel before the trial is over.
This is a classic lovemoney article that has been updated
More on credit ratings