Having bad credit can affect your life in all sorts of negative ways. For one thing, it will be difficult to access financing when it comes time to buy a home or a car. Even if you do receive the loan, your interest rate will be a lot higher than someone with a strong credit history.
Bad credit can also cause difficulties that might surprise you. It can get you passed over for jobs, denied an apartment, or hit with security deposits for your utilities. Life is tough and bad credit can happen to anyone, but you must take steps to rebuild yours as soon as you can.
How to Rebuild Credit
It would be natural to think that improving your credit score means simply avoiding credit for a period of time. In reality, you need to demonstrate that you can use credit responsibly, and that means maintaining one or more credit cards.
The most important thing is to pay your monthly bill on time. It also helps to pay more than your minimum balance, but not too much more, as this decreases the amount of profit that lenders get from offering you credit in the first place.
You also need to be sure to use a type of credit card that reports your payments to the relevant credit monitoring agencies – pre-paid cards do not. It is these credit agencies that determine your credit score; they are the ones who report to lenders whenever you apply for new credit.
If you already have one or more credit cards with a significant balance, as long as they haven’t gone to collections, you can begin to rebuild your credit by tackling that balance with consistent regular payments.
And finally, even if you know you are at fault for your bad credit, it is still worthwhile to request a copy of your credit report and go through it carefully. Mistakes are not uncommon, and if you find one, having it corrected could represent an instant boost to your credit score.
Getting a New Credit Card with Bad Credit
It is possible to get a new credit card with bad credit, but it’s challenging. In Australia you must undergo a credit check every time you apply for one, and a poor score makes credit card companies hesitant to approve your application.
Also, every new denial makes it less likely that the next company will say yes. That’s because most of them use so-called “hard inquiries” when you apply for credit, and these inquiries are noted on your credit report. Denials can negatively impact your credit score for 12 months.
Before you apply for any credit card, find out whether they do hard or soft checks on your credit. Soft checks are merely pre-qualifications that assess your chance of approval but do not show up on your credit report.
Finding the Best Cards for People with Bad Credit
When it comes to applying for a new credit card with a less-than-stellar credit score, it quite literally pays to do your research. Take the time to compare credit products before you apply so that you can target those with the best chances of success for you.
There are not a lot of options out there for people with poor credit, but the following products offer some hope.
ANZ First Credit Card
The ANZ First Credit Card is designed for people who are already carrying debt, so you’ll find that the purchase rate is a high 20.24%. However, the annual fee is only $30, which is quite reasonable. The minimum credit limit is $1,000.
A particularly nice feature is the 0% balance transfer interest rate for the first 18 months that you hold the card. That means you can transfer over other debt with a high rate of interest and save a ton of money if you are able to pay it off within the 18 months. You will also be building better credit during that time.
Westpac Low Rate Credit Card
With the Westpac Low Rate Credit Card you will get a 16-month period with 0% interest on balance transfers and a relatively low 13.75% purchase rate. The minimum credit limit is $500 and you’ll need to show at least $15,000 in annual income to be approved. The annual fee is $59.
This is another good product for repaying old debt with no interest. Westpac offers a SmartPlan program for repayments so that you know exactly what to pay each month in order to knock out that debt within the 16 months. Set up automatic payments and you’ll never be late.
Apply online and you’ll learn within 60 seconds if you have been approved.
NAB Low Rate Card
The NAB Low Rate Card offers a purchase rate of 0% for the first six months and then reverts to 13.99%. It can be a good choice if you aren’t concerned about old debt but need to use a credit card responsibly in order to build your credit score.
The minimum credit limit is $500 with an annual fee of $59. There is no minimum income requirement, and you will know immediately if you qualify.
The bottom line
Australia has clamped down on loose lending in recent years and it isn’t really possible to get a credit card without a credit check.
If your credit is so poor that you can’t get a new credit card right now, put your focus instead on paying down existing debt. You may qualify for a debt consolidation loan that helps you get out from under super high interest rates and satisfies your creditors. Then you only have to make only one payment per month towards debt, and that’s a lot easier to manage.
Within a year of good credit behavior, you should be ready to qualify for a new credit card with favorable terms.