Often, trying to rebuild your credit score after it has dropped can seem like a no-win situation.
You need to show that you can be responsible with a credit card, but no bank is willing to issue you a card because your credit score is so low.
If you have fallen into this trap, don’t worry – there is a way to get out of it. There are credit cards that are specifically designed for consumers with bad credit, and you may be able to qualify for one.
The terms may not be ideal, but they can provide the perfect way for you to start rebuilding your score and get back on top of your finances in no time.
How bad is bad
Before you automatically label your self as having ‘bad credit’ you need to get familiar with the range of credit scores.
It’s worthwhile to check with all three credit bureaus in the UK – Equifax, Experian, and Call Credit – to find out your actual score.
After all, unless you know how bad your credit is, you will have no frame of reference as to what you can do with it.
Whether your credit situation forces you to obtain a secured credit card or not, the simple fact that you have bad credit is going to mean that the terms and conditions of any card you qualify for will be less than ideal.
For starters, you will likely face low credit limits and astronomical interest rates on both secured and unsecured credit cards.
Your card issuer wants to discourage you from racking up a higher balance than you can afford to pay off, and it does this by ensuring that you will have to pay major interest fees if you choose to carry a balance on your credit card.
The best way to fight these fees is to pay off your entire statement balance at the end of each month rather than letting your charges carry over into the next period.
If you can make an effort never to let your outstanding balance exceed your monthly budget, then you will never be subject to interest fees, but you will still constantly improve your credit record by paying consistently and on time.
Bad-credit credit cards
If you do qualify for an unsecured credit card even though you have bad credit, you should be wary of cards that are designed for bad credit.
In addition to having extreme interest rates, bad-credit credit cards will usually charge you an upfront or annual fee – often as much as 25 percent of your credit limit.
You won’t ever see this money again after you pay the fee (which makes it different from the deposit you pay on a secured card), but they can provide access to credit.
Read our guide ‘Can a bad-credit credit card repair your finances’ if you’d like to learn more about these cards.
Don’t get discouraged
While all of these caveats and warnings may make you even more nervous to get back into the world of credit than you already were, you need to remember that these extreme measures won’t last forever.
Once you have proven that you can handle your money more wisely now, your credit score will eventually start to go up and you will be able to abandon some of the more unsavoury credit-building accounts.
Eventually, you will be back on track, but it will take a little time and some hard work in order to get you there.