Having a bad credit rating can have potential consequences on your financial options – it might make it more difficult to obtain a loan or credit card from reputable lenders in the future. But having a bad credit rating doesn’t have to be all doom and gloom. You can still apply for a credit card with bad credit, and there are still reputable lenders out there that can give you a second chance at being a responsible borrower. Of course, you have to do your homework first before applying, and provide a lender with good reasons to give you a line of credit.
The table below displays a snapshot of 4-Star and above low rate credit cards on Canstar’s database, with links to providers’ websites. The products and Star Ratings displayed are based on a monthly spend of $2,000. Results are sorted by Star Rating (highest to lowest) then alphabetically.
How to get rejected for a credit card
If you just keep on applying for credit cards knowing you have a bad credit rating, you will continue to be rejected by banks and credit institutions. Lending institutions have lending criteria that they have to follow by law – so they can’t give you a credit card unless you meet those criteria. Applying for credit cards and being rejected by banks and lenders too often is just one thing that contributes negatively to your credit score, as well as:
- Making late repayments
- Not making repayments at all
- Not repaying your balance transfer by the end of the promotional interest period
- Getting multiple balance transfer credit cards too soon after the other
All these things can add up to your final credit score, which is separated into the following bands:
|Credit-worthiness||Excellent||Very Good||Good||Average||Below Average|
|Score||833 – 1,200||726 – 832||622 – 725||510 – 621||0 – 509|
What constitutes a ‘bad’ credit score is for the bank to determine, but finding yourself in these lower score tiers could result in lenders giving you less favourable terms or rejecting your application outright for certain products.
You can still get a credit card with bad credit, however; you just need to be willing to put in a bit of work.
How to get approved for a credit card
Here are the typical lending criteria that you need to meet when you apply for a credit card with bad credit:
1. Have a steady source of income
A lending institution is not legally allowed to give you a credit card unless you have enough annual income to meet the minimum repayments for that card’s credit limit. And you should think twice before applying for a credit card if you can’t afford to repay your card in full each month, anyway – you might be better off using a debit card than getting into debt.
If you don’t already have a regular job or a reliable source of income, maybe don’t apply for a credit card just yet. You are likely to get rejected by major banks and other credit lending institutions, which creates another black mark on your credit report.
How much of a job is enough? For those who are employed as casuals or contractors, you may need to 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 doesn’t actually help you get a credit card with bad credit, because most lenders are looking for one or two stable sources of income to repay the card, rather than several smaller jobs.
2. Pay off other loans or credit
Lenders usually approve credit cards (or other types of loans) based on your repayment history with cards or loans you already have. You will need to demonstrate a consistent history of meeting your required monthly repayments over the past months. For credit cards, you will need to show that you’ve been making more than just the minimum monthly repayment, to show that you can actually repay the debt.
You can check your credit rating and your credit history report for free (once a year) with Equifax, Dun & Bradstreet (CheckYourCredit.com.au), and Experian Credit Services. Read this article to find out more on how to do it.
3. Fix your credit report
Why should you check your credit history report? You can’t improve your credit rating until you know what black marks you need to fix. And you never know what it might uncover – an unpaid phone bill that you can afford to repay now, or even an administrative error that is the whole reason why you have bad credit. It’s easier to fix your credit report now than to apply for a credit card and be rejected, because being rejected is just one more black mark on your credit report.
Canstar has an in-depth article an how you can improve your credit score.
4. Start saving
Lenders look at your current bank statements when you apply for a credit card with bad credit. If you’ve overdrawn your account recently, or if any direct debits have been dishonoured because there wasn’t enough in your account at the time, these things do not look good to lenders.
It’s essential to prove that you are not spending all of your income on your expenses and other debts, but that you are actually saving a small amount each week. This says to the lender that you have the finances to repay a credit card if they give it to you.
What other products can you get with bad credit?
If you’re having trouble applying for a credit card, there are alternatives out there that can help you meet your financial goals. These products include:
- Travel money cards, which allow you to load currencies ahead of time if you’re travelling overseas (an alternative to travel credit cards)
- Debit cards, which can be a good way to avoid debt all-together by only allowing you to spend money you already have
- Prepaid credit cards – cards that come with funds pre-loaded and don’t charge interest
- Bad credit personal and home loans, which don’t take your credit history into account but may come with stricter lending requirements
If you do decide to go with a credit card that suits your credit score, you can compare what’s available with Canstar: