Knowing which types of bad credit cards are available on the market is an important step in acquiring a credit card. Each card will be aimed at a different section of society, whether it’s students, retirees or low or high income earners, and will have varying terms attached accordingly.
It is important to put in the time and research to explore the options open to you and find the credit card that fits your particular situation. The terms and conditions of a particular card should suit your needs. If you’re looking for your first credit card this is especially true, as it may prove more difficult to be accepted without a history of responsible borrowing.
Keeping your bank and credit card statements organised safely and effectively is vital to ensuring responsible use of your credit card. You never know when you may be required to check the details of your accounts or be requested to provide such information. A record of all your accounts and cards will make this both quicker and easier.
Most fees attributed to credit cards can be avoided by taking careful note of the terms and conditions of your contract and planning around those. Avoiding late fees can be achieved by budgeting; this will ensure your ability to make payments on time.
Some fees may be unavoidable, but these are part of the informed choice you should make when applying for credit cards. It is important to take these into consideration and plan ahead for their payment.
By paying off the minimum amount each month, you can save yourself from various fees. Those who choose to pay off their balance in full each month can also reduce the risk of exceeding their credit limit, thus reducing the chance that they will incur fees associated with this.
Some cards will reward you for your continued efforts to pay off your monthly balance. This may be in the form of loyalty points or air miles, and provide a welcome reward for responsible credit card use.
Having the little voice of temptation in your purse or wallet makes it much easier to overspend. If you don’t carry the card with you, there is less chance that you will put make unnecessary purchases. Of course there may be times when you need to use your card, but by not carrying it around, you will be making considered decisions rather than acting on the spur of the moment.
If you have no money in the bank, it’s OK to use your card as an emergency fund. However, this means using it to pay for urgent expenditure that you cannot afford and desperately need – like a new boiler or getting your car through the MOT. It’s not there to buy a new pair of shoes!
If you have great credit, try and only use a card which offers a 0% interest rate. In the current economic climate these are only being offered to borrowers with a whiter than white record so if you get declined, you are in good company. Just remember that even though there is no interest, you still have to pay the money back so it’s not free rein to go wild.
If you are lucky enough to qualify for either a 0% or reduced rate of interest, don’t breach the terms. This will cancel out the special rates immediately. And when the introductory period expires, look around for another lender offering a competitive deal and cut your current card up; rates often jump exorbitantly afterwards.
Although you should keep spending on your card to a minimum, if you do have to use it and don’t have a 0% interest option, a reward or cash-back card may offer an alternative. Spending on a credit card is rarely a good idea but if you have to do it, at least earn yourself some cash or benefits at the same time.
If you know you will struggle to be disciplined with yourself, ask either your partner or a trusted friend to look after the card and grill you if you ask for it. The idea of facing an inquisition might be enough to deter you from binging unnecessarily.
Remember that one of the main benefits of credit cards is that they protect your purchases – and this means they are the perfect form of payment when booking holidays or paying for expensive electrical items.
]]>Not necessarily. Zero per cent transfers start with no interest to entice you and can be great in the short term to curb the amount of interest you are paying and consequently help you to get your finances in order.
You will usually find, however, that the deal only lasts for about six months, before the standard rate of interest kicks in again. Low APR cards, in the long term, can prove to be less costly in terms of overall interest.
That is why it is crucial to understand the small print and do the maths to see how the interest payments will affect you, in actual terms, over a longer period. So, in short, the low APR option regularly works out better in the long term.
With these cards you can get a really good deal in the long term and stay ahead of the interest payments. Switching credit cards on a regular basis can also be detrimental to your credit rating. You also have the potential burden of fees on the balance transfer if you keep changing your card.
It is worth pointing out that if you are the sort of person that pays off most of your credit card balance each month, rather than just the interest, a low APR card is particularly beneficial for you. A zero per cent interest card is a better quick fix for those who are simply meeting the minimum payment each month.
Store cards can only be used within the group of shops that the company owns whereas credit cards can be used everywhere, so it does limit you to an extent. The main bonus of a store card is that the company usually offers discounts on shopping and bonus points to give you better prices on the products within that chain.
They usually also offer low rates of interest, so they are good for you if you buy products from that company on a regular basis. For example, if you do your food shopping there each week, then a store card could significantly cut down your expenditure.
There is such competition out there among credit card companies that you will usually be granted a card even if you have a bad credit history or county court judgement against you. As long as you are earning a regular income you shouldn’t despair, as you will still probably be able to find something that suits your needs.
Even if you do get declined at first, the company will often lodge an appeal for you to see if the original ruling can be overturned. Remember, you are the lifeblood of such companies and your custom is important, so you hold all the aces.
A guaranteed credit card is essentially a pre-paid card so you can only spend what you have put in to the account. You will typically have to pay a fee for this service but the benefit of such a scheme is that you can’t get into debt with the company and you don’t usually need a credit check or even a bank account to get one. So it’s a good alternative to having to keep lots of cash on you.
The less interest you have to pay, the better off you will be in the long run; these cards therefore work well for people who want to keep a tight grip on their purse strings.
]]>*It is important to note though that, while using a credit card in the correct way brings many benefits, poor planning and reckless over-reliance on credit cards can lead to far more negatives that outweigh any potential benefit. Be responsible when using a credit card, do not over-stretch yourself and know what your limits are.
In this article we will endeavour to guide you through the process of choosing the right credit card for your needs. We will discuss interest payments and how your choice of card can massively impact the amount you pay, credit limits, minimum repayments, balance transfers, reward cards, cards for people with bad credit and more.
Credit cards, in effect, allow you to pay for things in shops or online using cash belonging to the card issuer. This is different to how debit cards work where you can only ever spend your money (unless your account has an overdraft facility).
At the end of each month the card issuer will ask that you repay the amount you spent (or borrowed) on the card and will charge interest on your debt if you do not pay the balance in full (unless you have a 0% on purchases deal).
First of all it is important to remember that if you pay off your credit card in full at the end of each month you will not be liable to pay any interest at all so if you are able to do this then it is highly advised.
If you have a remaining balance on your credit card then you will be charged interest at an annual percentage rate (APR) set by the credit card company. It is these APRs that you should be using to compare credit cards on a basic level and all issuers are required to inform you of the APR when you apply.
It is commonplace for major banks such as Lloyds TSB, Santander and HSBC to offer their customers credit cards on a regular basis (indeed this is an even more regular occurrence with internet banking) but it must be said that they rarely offer the best deals in the marketplace.
A misconception that credit card holders often make when calculating the interest they will pay comes about when it comes to the date interest is charged from. While many card companies offer an interest free period during which repayments can be made without penalty, after this date passes interest charges come into play. While it may seem logical to assume that the interest is calculated on the balance from the day this period ends, it is more common for interest charges to be calculated from the date of each transaction.
So if you purchased your weekly shopping on the 1st of the month and didn’t pay off your credit card at the end of the month, you would pay interest on the grocery shop from the 1st and not from the date your statement is issued.
When you successfully apply for a credit card, the issuer will give you a credit limit based on various factors and this is the total amount you can borrow on a cumulative basis – i.e. it is not a limit for each month’s spending but rather a total amount owed to the issuer.
Some people are given a credit limit far above their needs or current monthly spend but it is important to realise that just because you now have access to a greater level of funding than before, YOU DO NOT HAVE TO SPEND TO THE LIMIT, in fact it is often very dangerous to do so.
The credit card company have calculated an amount that they believe it is safe to let you borrow based on your credit history among other things but you should be aware of your own financial situation and your ability to pay back the amount your spend at the end of each month.
Your credit limit is subject to change. Card companies will occasionally review your personal circumstances and, based on your history of repayments and changes to your credit file, they may increase your limit. You can also request an increase from your credit card issuer at any time though they will only agree if the figures show an increased ability to repay what you borrow.
Come the end of each month you can choose how much to repay on your credit card (the best outcome being a full repayment of course) but card issuers will almost certainly insist that you fulfil a minimum repayment which will usually be the higher figure between a percentage of your spend and a fixed amount set by the card company.
These minimum payments are often very small in size but not paying them can result in more expensive penalties either in the form of charges/fees or in the respect of losing certain benefits you received when you signed up (for instance they could take away your 0% on purchases or balance transfers and revert your account to the standard rates which will be much higher).
It is never advisable to only pay the minimum amount on your credit card bill as this will result in further interest accruing on the remaining balance. Even if you cannot repay your bill in full it is advisable to repay as much as possible to avoid the interest building up into a “problem amount”.
When you are looking around for the best credit card deal you need to think carefully about your ability to repay and indeed whether you intend to pay off what you spend straight away.
If you don’t think you are going to be able to pay off your credit card bill at the end of each month then you should find a card with a low standard rate or preferably one with a 0% on purchases introductory offer.
If you have outstanding credit on an existing card then you might be able to defer your repayments by getting a new card with 0% on balance transfers. If you are currently paying interest on your existing balance then you can cut this down dramatically with a 0% balance transfer card and actually begin to pay off the balance rather than watch it grow each month.
You will probably have to pay a small fee for transferring your balance to the new card (2.5% isn’t uncommon) but this one off charge will almost certainly leave you better off in the long run as you reduce your balance and thus the interest payments you were forking out for on your old deal.
If this 0% period runs out and you still have an outstanding balance to be paid simply look for and switch to another card provider offering a similar interest free introductory offer.
If your new card has 0% on balance transfers but not on purchases, it is quite ok to have more than one credit card so find one that has 0% on purchases and use that for buying things and the other simply as a method for repaying your debt.
If you have ever wondered why people with sufficient balance in their bank account use credit cards rather than a debit card the answer is simple: you can get a great number of extras and incentives when you use a credit card.
The most obvious form of reward that card issuers can give their customers is cashback. What this basically means is that for every pound you spend on your credit card, the issuer will give you back a small percentage. This percentage can be as high as 5% but this might only apply to the first few hundred pounds your spend on the card after which the cashback reduces considerably. Other cards will offer a fixed 1% – 2% for spend that occurs in supermarkets for instance or certain department stores while offering a lower percentage for all other purchases.
Another very popular type of reward, especially with regular travellers, is air miles whereby you receive a certain number of miles free travel for every pound you spend. Big spenders can find themselves jetsetting across the world for free if they build up enough miles. Be mindful that some air mile cards limit which airlines you can fly with so look for one which covers multiple airlines and the routes they encompass.
Certain big supermarkets and department stores have their own credit cards which give you points for every pound you spend. The number of points you receive for shopping in that stores usually outweighs the points received for all other general shopping which is a way to encourage you to shop with them over their competitors.
If you regularly shop there anyway, these types of store credit cards can actually be a good option assuming you pay them off each month (as their interest rates are hardly the best on the market).
Some credit cards will offer even more benefits but be careful, these cards may charge annual fees for the privilege. Some additional benefits may include:
If you would like to have a credit card but have bad credit you have to look at a special set of cards.
Certain card providers such as Vanquis do offer credit cards to people with bad credit but will charge a much higher rate of interest.
You might be asking yourself why you would want to opt for a card with such an interest rate over just using cash but used in the correct way these cards can actually be used to build you credit rating up again if you repay what you spend every month.
Alternatively you could opt for a prepaid credit card which will not charge you any interest because you have to load up the card with funds before you can use it. They are common among young people and are also useful when travelling abroad. Read our complete guide to prepaid credit cards here.
]]>A pre-paid credit card works in much the same way as a mobile phone top up, gift card or underground travel pass. You pay a certain amount into the card’s account, which is then available to spend on the card.
This means that, unlike a traditional credit card, using a pre-paid credit card does not involve borrowing any money. The available balance is made up entirely of your own money, rather than the card providers. So, no matter what you do, there is no chance that you will put yourself into any debt, you will simply run your credit down.
The cards are also very convenient, allowing you to access funds from ATMs, buy goods online or in stores without having to carry cash around.
The sting in the tail with a regular credit card is that the interest the mounts up on a negative balance. Not only is there the temptation to use money which is not yours to buy things you can’t afford, there’s the added cost of the interest, which will keep growing the longer you fail to repay it. This is one way people spiral into debt.
This is not possible with a pre-paid credit card, as there is no interest and the limit on the card is dependent on how much you choose to put on it, making it the ideal tool for those determined to draw up a budget and stick to it.
For the same reason, pre paid credit cards can be a great way for parents to teach their teenage children about money and spending. It will give them the freedom to withdraw cash from ATM’s and to spend in shops, but it also places strict limits on their spending.
On the other hand, if you want to make sure a loved one does not run out of funds, if they are out of reach or travelling, pre-paid cards are ideal, as you can top up the balance for them without needing to have the actual card.
You can top up pre-paid cards with money by transferring money from a bank account, paying in at a Post Office branches or any of the many convenience stores around with PayPoint or Payzone signs displayed.
In these times, when credit card fraud is becoming an increasingly widespread problem, the added security of using a pre-paid card is very attractive. As with a credit card, a fraudster would need all of the cards details and the PIN number to access funds, but there also a number of other safety factors that come with a prepaid card.
For one thing, as the balance is limited to what you place on a card, even they get the card’s PIN a fraudster could only spend that set amount. He couldn’t run you into debt, empty your account or give you a massive credit card bill. On top of this the card can be cancelled instantly if you inform the provider that it is missing.
When you do this the provider will supply you with a new card and, what is more, the funds remaining on your old card will be transferred to your new cold, effectively snatching your money back from the thief and replacing it in your hands, where it rightly belongs, something that very rarely occurs when cash is stolen.
However, with pre-paid cards you do not get Section 75 protection, which entitles you be refunded for purchases worth between £100-£30,000 if the goods aren’t delivered or aren’t as described.
Pre-paid credit cards are now extremely popular with people going abroad as they often have very competitive exchange rates and, as they are an effective budgeting tool, are very good at ensuring you don’t go overboard when you’re abroad.
As well as normally having better exchange rates than most high street banks, they are also often immune to the expensive charges associated with using a card abroad.
The fact they are not linked to your bank account make them more secure than carrying a card in countries where card cloning scams directed against tourists are common. Needless to say, they are also preferable to carrying lots of hard currency.
As there is not usually any borrowing involved in using a prepaid card, there are also no credit checks involved in the application stage. This means that, provided you can pay the application fee (normally about £5-10, if there is one) you are guaranteed to be accepted, regardless of your financial history.
Whilst the majority of prepaid cards will not affect your credit score, there are some which are specifically designed to help boost your credit score. These work in a very simple but affective way.
Some pre-paid cards will charge you a monthly fee for their use. Instead of doing this, pre-paid cards designed to build your credit will give you an interest free loan, which you then pay back in monthly instalments, equivalent to what you might have otherwise paid as a fee.
This will boost your credit score as it will show you can handle a loan, but you still don’t run the risk of overspending on your card or wracking up lots of interest. Just think of it as a fee for your card that also boosts your credit score!
There are various charges associated with the use of a pre-paid cards. There is the cost of acquiring the card, this can be up to £10 but is often cheaper, or even free.
You can also be charged for a transaction fee for using your card. Many cards have no transaction fees at all. These come recommended as transaction fees normally end up being the biggest cost of using the card. Others have limited small charges for each transaction. However, there are cards that charge a % transaction fee, normally about 3%. Watch out for these, especially if you are thinking of making big purchases as they will really cost you.
Finally there are some cards that charge a monthly fee for using the card, but many do not, which is obviously preferable.
Two charges that are very consistent are the top up and withdrawal fees. These are the amounts you are charged when you load the card with money or take it funds from a cash machine. These can be charged as flat rates or as percentages. Again, the most cost effective way to handle this is to avoid percentage charges, and pay in/withdraw larger, infrequent amounts, rather than regular, small amounts.
You should compare all these costs when picking the card for you.
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