Have Bad Credit – What Are Your Options?
If your credit history is less than perfect, you may think that things like shopping online, paying for bills over the phone or even just using a card to pay for things in a shop are way out of your reach.
This isn’t necessarily true. While having a low credit score can hinder you somewhat, there are still several options available to you. Many financial institutions offer products geared towards customers with poor, or no, credit histories. Some products will even help you repair your credit score, or start building one from scratch.
There are three main types of credit cards for bad credit:
The high APR, low limit card.
Capital One and Vanquis are the best known providers of these cards in the UK, which typically have an APR exceeding 29.9% and low, manageable credit limits of around £200. The aim of the card is not to give you access to credit, but rather to let you demonstrate that you can manage to stick to repayments. The high APR reflects the ‘risk factor’ in lending you the money.
By using one of these cards, and keeping up with repayments, you’ll be going a long way to improving your credit score. However, if you miss repayments or fail to pay on time, it will go against you.
But resist the temptation to get the card and not use it. The idea is to show that you can manage a credit card, and the only way to do that is to use it and make repayments.
The Prepaid card
Not a credit card as such, but the prepaid card will allow you purchase from most online stores and pay bills as you would with a classic credit card. There’s no risk involved as these cards work a little like a pay as you go phone; you preload the card with money and then it’s available to spend almost instantly.
There’s usually a loading fee associated with these cards, and most of them require you to pay an application fee of around £5. There are no credit checks required in taking out a prepaid card, so they’re ideal if you don’t want ‘footprints’ left on your record.
The prepaid card is also a great option if you’re going abroad, as you can get cards which allow you to load up with Euros/Dollars/Sterling as needed. They can then be used as a regular card in the relevant country.
The Secured card
These type of cards are very popular in the US and are beginning to have visibility in the UK. In essence they work like a prepaid card but with one very important difference; they report back to credit reference agencies.
So by using a secured card you’re actually improving your credit record without paying high interest rates and risking further debt.
Prepaid and secured credit cards can also help you to maintain a healthy credit score as well as repairing or starting to build one.
Guest Post by Louise Tillotson is a financial writer for Moneysupermarket.com, a price comparison site in the UK. Follow her on Twitter @L00ty
Repair bad credit to ensure a better financial future.