Credit Cards for Bad Credit

Despite their numerous advantages, not everyone can avail credit cards unless they meet the required eligibility criteria. Most financial institutions and banks have certain criteria in place which has to be fulfilled by the applicant. Some of the common factors include -

1. Age - Usually individuals above the age of 18 can avail credit cards unless otherwise specified. Another option that can be availed is add-on or supplementary credit cards by those who are below the age of 18.
2. Income - This is one of the most important factors that is considered by credit card providers. As long as individuals show proof of their ability to afford the credit card and pay the required bills, they will receive their chosen credit card.
3. Location - Certain credit cards come with benefits as well as perks that work only in certain locations such as Tier-I cities. Therefore the location of an individual matters.
4. Credit Score - In addition to the individual's income, having a good credit score is of utmost importance for banks and financial institutions. In case individuals have a good credit score, they can avail credit cards of their choice quite easily.

What is a Credit Score

Before delving into credit cards and their features, it is important for applicants to understand the concept of a credit score. Ever since credit reports and credit scores were introduced, an individual's creditworthiness has been decided based on that criteria. A credit report is a detailed report of an individual's credit history which essentially talks about the individual's credit behaviour, loans, repayments and so on.

A credit score is nothing but the numeric representation of an individual's credit worthiness. There are a number of organizations that provide credit scores within India but the most commonly subscribed score is provided by CIBIL.

What is a Good Credit Score

A credit score is a three digit numeric representation of an individual's credit report. This number can vary from 300 to 900. Generally, all scores above 700 are considered to be good and scores below 450 are considered to be bad. Lenders, banks and other financial institutions use a credit score to assess the potential risk that applicants pose with respect to repaying the loan or credit card bills. Additionally, this score is also used to evaluate which applicant might bring in more revenue. Those that pose the least risk will receive loans and credit cards more easily and these are the ones that have a high credit score.

There are a number of advantages to having a high credit score. Individuals with scores above 700 can avail a credit card of their choice as long as their income level is eligible. Additionally, while procuring loans, these individuals can enjoy low interest rates and better deals as well. A good credit score is an indicator of the individual's ability to repay all loans and maintain a good credit history and hence are given preference over those that do not have good credit scores.

What Causes Bad Credit Score

Sometimes certain individuals are unable to maintain a good credit score. This could be due to a number of reasons. Some of them include-

1. Delayed payments as credit history accounts for a chunk of the credit score. Hence paying bills late can have a harmful effect on the individual's credit score.
2. Defaulting on payments is another reason for poor credit score. It can get worse if the payment is charged off. This is usually done if the credit card provider is convinced that the individual will not be able to pay his/her bills.
3. Foreclosure is another reason for bad credit score. The effect that foreclosure has on an individual's credit score is similar to that of loan default.
4. Filing for bankruptcy is again extremely harmful to an individual's credit score and will make it very hard for the individual to bounce back again.

Cardholders are therefore advised to avoid the above actions to ensure that their credit score is above 700.

Credit Cards for Bad Credit Score

However, there are instances wherein individuals have a bad credit score but wish to avail credit cards. Although they may not be eligible to receive the credit card of their choice, there are certain cards that can be procured by them.

In case an individual has a bad credit score, the best option would be to avail a secured credit card. This a credit card which is secured against a collateral such as fixed deposit. If the individual has a fixed deposit amount that amounts to Rs.30,000, the credit limit of that card would be around the same amount or lesser. Additionally, individuals can also avail instant credit card approval. Secured credit cards can help customers build their credit score and thereby procure other credit cards in the future.

Additionally, proof of income is also generally not required for secured credit cards making it easy for individuals to avail this card even if they have a bad credit score.

Other advantages include reward points upon using the card, fuel surcharge waiver and other perks associated with the credit card. However, customers should note that this varies from bank to bank.

Certain banks provide secured credit cards such as the Insta Easy Credit Card from Axis Bank and the SBI Advantage Plus credit card.

Therefore, although having a poor credit score is never advantageous, individuals can avail secured credit cards and try to build their credit again and improve their credit score.