Credit cards for bad credit
It can be hard to get approved for a credit card if you have bad credit. But it’s not necessarily impossible.
Key points:
- You may be able to get a credit card with bad credit, as your credit history is typically just one part of the eligibility criteria applied by lenders.
- ‘No credit check cards’ are generally not available in Australia.
- Check your credit score first and do your research into the card you are applying for.
There are a number of reasons why you might have poor credit – perhaps you’ve missed repayments or defaulted on another credit card or loan, or maybe you’ve made too many applications for credit in the past. You might also have no credit history yet. Whatever the reason, you may still have options. But it’s important to be aware of the risks.
Can I get a credit card with bad credit?
You may be able to get a credit card with bad credit, as your credit history is typically just one part of the eligibility criteria applied by lenders. The exact criteria can vary between lenders but you’ll typically also need to demonstrate that you can make your repayments, for instance by having a regular income, savings and no or few other debts.
If you have a bad credit score, lenders may ask for more evidence to support the other elements of your application than they otherwise might.
→ Check your credit score for free with Canstar.
Are there credit card providers who don’t perform a credit check?
‘No credit check cards’ are generally not available in Australia. Credit card providers will usually perform a credit check when you apply for a credit card. They will use this information, plus factors such as your income, assets, debts and expenses, to help decide whether to approve your application.
That’s why it’s important to check your credit score first and do your research into the card you are applying for. Each time you apply for a credit card, it will be listed as an ‘enquiry’ on your credit report. If you make multiple applications for credit in a short space of time, this could actually make your credit score worse.
How do I get approved for a credit card if I have bad credit?
Whether or not you get approved will depend on your personal circumstances, including factors such as your income, assets and expenses, as well as the credit card provider’s eligibility criteria. But there are some things you can do that could help improve your chances of approval with bad credit:
Demonstrate a steady income
Make sure your income will allow you to comfortably meet your credit card repayments each month. The credit card may have a minimum income requirement, or require you to earn a regular income. If you don’t have a regular income, you may want to hold off on applying.
Pay off other loans or credit
Your credit report can include information about your repayment history, including whether you have made your payments on time or missed any payments. If you can demonstrate a history of paying your other debts on time, this could improve your chances of approval. For other credit cards, paying more than the minimum amount can also be helpful.
Work on improving your credit score
It can be worth taking some time to improve your credit score before you apply. Your credit score can change as new information is added to your report and negative information eventually drops off. Paying off other loans or credit and paying your bills on time can help improve it. It’s also worth checking your credit report and making sure the information is correct.
Build up your savings
The provider will also ask about your assets, so it can be helpful to have some savings built up. Saving regularly can also help to show the lender that you will be able to meet your credit card repayments consistently.
Should I get a credit card if I have bad credit?
If you have bad credit, it might be wise to steer clear of credit cards altogether, at least until you can improve your position. If you’ve had difficulty making your repayments or paying bills on time in the past, a credit card could create further financial stress and get you into debt. If you can’t make your repayments, this could also make your credit score worse. If you have no credit history, it could be a good idea to discuss your options with your credit provider.
→ Explore: How to find the best credit card for first timers
Before you decide on which credit card to get, it’s also important to read all the documentation, such as the Target Market Determination and the Key Facts Sheet, to understand how the product works, the fee and interest costs, and what the penalties are if you were to miss a payment or fall into financial hardship. If in doubt, ask the provider.
What other options are available?
Some other potential options include:
- Debit card – a debit card is attached to your everyday transaction account and allows you to spend your own money. This is compared to a credit card where you are taking on debt.
- Personal loan – a personal loan is another potential option and, compared to a credit card, offers the advantage of a set repayment schedule and term, and often a lower interest rate. But a personal loan can be risky if you have bad credit, as you are still taking on debt and you will need to repay the loan amount plus interest and fees. Providers tend to offer higher interest rates for people with bad credit. Again, approval will be subject to the lender’s eligibility criteria and your personal circumstances.
- No interest loans – if you are a lower income earner and need money for essential goods and services, you may be eligible for a no interest loan of up to $2,000.
- Buy now pay later – providers like Afterpay and Zip allow you to buy goods or services and pay for them back in instalments. Fees will vary depending on the provider you use, but generally you can face late fees if you miss a repayment. Some providers will also check your credit score. Your credit score could also be impacted if you miss repayments.
Be careful of payday loans as they can be extremely expensive. Lenders can’t charge interest on payday loans, but they can charge high fees (20% establishment fees and 4% monthly fees).
If you need help getting on top of your bills and debt, consider speaking to a free financial counsellor.
Cover image source: Suradech Prapairat/Shutterstock.com
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This article was reviewed by our Deputy Editor, Canstar Amanda Horswill before it was updated, as part of our fact-checking process.
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