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While it may be possible to apply for a credit card with a poor credit score, there could be increased risk in doing so and it may be more difficult to get approved compared to someone with a good credit record. We take a look at some things to consider before applying for a credit card with a poor credit score.
If you want a credit card, it could be a wise idea to do your homework before you lodge an application. This is because lending institutions have certain criteria they have to follow by law. Applying for credit cards without checking whether you are eligible in advance may result in your application being rejected. Any rejected applications are typically recorded on your credit history, and if your credit record contains multiple rejections, this could potentially negatively impact your credit score. This, in turn, could make it less likely that any future applications you make will be approved.
Other factors that could damage your credit score may include:
- missing or making late repayments on existing debt
- not paying your utility and other household bills on time
- applying for riskier forms of credit, such as payday loans.
These are among the things can impact your final credit score, and may determine which credit score range you fall within. For example, this is how credit score provider Equifax categorises consumers based on their score:
Equifax credit score bands
| Excellent | 853-1,200 |
|---|---|
| Very good | 735-852 |
| Good | 661-734 |
| Average | 460-660 |
| Below average | 0-459 |
Source: Equifax
Ultimately, what constitutes a ‘poor’ credit score is for each individual bank or other credit provider to determine, but finding yourself in one of these lower score tiers could result in lenders giving you less favourable terms or declining your application altogether for certain products.
→ You can check your credit score for free
Is applying for a credit card with a poor credit score a good idea?
Before looking into how to get your application approved, it may be worth considering whether getting a credit card is a good idea at all. If you have had difficulty meeting your repayments on other credit in the past, or you have missed bill payments recently, applying for more credit may make it even more challenging to stay on top of your finances. It could be helpful to create a monthly budget to identify your regular costs and income, and if you find that you are spending more than you are earning, it could be worth looking at ways to reduce your costs rather than applying for credit.
If you’re unsure of what approach is best for your situation, you could seek the help of a financial counsellor who may be able to offer guidance on how to manage your finances. You can speak to a financial counsellor for free. One way to do this is by contacting the National Debt Helpline on 1800 007 007 or via its website.
Explore: How long does it take to fix a poor credit score?
How to put yourself in the best position when applying for a credit card
If you decide that applying for a credit card is suitable for your situation, here are some factors that lenders may look for when it comes to applicants with a poor credit score:
1. Demonstrate a steady income
Under Australia’s responsible lending laws, a lender must look at your financial position to make sure a credit card you apply for is “not unsuitable” for you before it can approve your application. This generally includes assessing your regular income. Before applying, you may want to think about whether your income will allow you to meet your credit card repayments each month, particularly if you don’t have a regular job or reliable source of income. If your application is rejected, this could negatively impact your credit score.
For those employed as casuals or contractors, it may help if you can demonstrate a long-standing working relationship of more than 12 months with your current employer. Having more than one employer in a short span of time could be a red flag for credit card lenders if you already have a poor credit score.
2. Pay off other loans or credit
Lenders usually approve or deny applications for credit cards (or other types of loans) based partly on your repayment history with any cards or loans you already have. It may help if you can demonstrate a consistent history of meeting your required monthly repayments over the past few months and years. For credit cards, you will often need to show that you’ve been making more than just your minimum monthly repayments, to show you can afford to repay the debt.
3. Work on improving your credit score
Many lenders check your credit score when assessing applications for credit. If you’d like to improve your credit score, it could be worth looking into what black marks you may be able to fix over time, or even any errors you could report to the credit bureau for investigation. Canstar has some tips on how you can improve your credit score, to help get you started.
4. Start saving
Lenders may also request and consider your current bank statements when you apply for a credit card, particularly if you have a poor credit rating. If you’ve overdrawn an account recently, or if any direct debits have been dishonoured because there wasn’t enough money in your account at the time, this may work against you.
It’s important to be able to prove you are not spending all your income on your expenses and other debts, and that you are saving at least a small amount each week. This may help to show the lender that you will likely have the means to repay a credit card if they give it to you.
What other products might you be able to get with a poor credit score?
If you’re having trouble being approved for a credit card or if you decide that applying for credit is not in your best interests, there are alternatives out there that could possibly help you meet your financial goals. These products include:
- Debit cards, which can be a good way to avoid debt altogether by only allowing you to spend money you already have
- Prepaid cards, that you can pre-load funds onto and that don’t charge interest.
Explore: Can you get a home loan if you have bad credit?
Main image source: Suradech Prapairat/Shutterstock.com.
