So, You Have Good Income But Your Credit is Horrible?
Are there credit cards for someone with really good income but completely horrible credit raing? Not surprisingly, there are such cards.The HSBC backs the credit cards of several banks that specialize in providing credit cards for horrible credit and good income is one qualifier required.
Sub-Prime Credit Cards
Horrible credit but good income cards are possible with the various credit cards offered through smaller banks and backed by HSBC. Some of the credit accounts are unsecured where the lender is taking a chance on providing a credit line to a consumer with bad credit.
The upside for the lending bank is that if the consumer does pay his credit card bill for the sub-prime account, the lender will profit due to high interest and fees on the account.
These credit cards are considered sub-prime and were designed to help people with bad credit rebuilt their credit rating by having a credit card they could use and pay.
The spending limits are low and often only $300 initially. When a consumer must use this type of credit account, it should be done only to repair bad credit and not as a long term credit solution.
There is no credit, poor credit, bad credit and there is horrible credit. If the bad credit on your credit file is due to an explainable, temporary problem you may qualify for one of the unsecured accounts.
Horrible credit but good income cards are somewhat more difficult to find. On the one hand, it's difficult to explain horrible credit when you had the income to pay.
On the other, the lender's risk is reduced to some extent as you have the income for the bank to recover lost funds legally should you fail to pay your credit debt.
What Separates Bad Credit from Good Credit?
Your credit score is a three digit number that says a lot to lenders about how you manage your finances. The number is between 300 and 850. A score above 800 is excellent credit while below 620 may be classed as sub-prime by lenders.
Your FICO score is a compilation of five components that are weighted by percentages. These five components are the same for everyone and having a problem with only one of the five can cause you problems.
- Payment habits – 35%
If you pay your bills on time every month, this one will be a cinch. However, this is the component that trips up so many people. If you pay your bills late or miss a payment, it will show up here.
It's understandable that in a financial crisis or during a time of lost income or a medical emergency, late payments may be unavoidable. That is, we understand how that can happen to us. Credit lending banks are not as understanding.
Credit rating agencies take late payments on accounts very seriously as you can see by the 35% weight attached to this component.
- Debt use as a percentage of credit lines available – 30%
You may have heard economists advise consumers to use no more than 50% of the spending limits available on their credit cards. This component is the reason for that advice.
If you have $10,000 in credit card limits and have a balance of $4,000 on those cards, you have an additional $6,000 you can spend if you choose.
If you have $10,000 in credit card limits with a balance of $9800 on the accounts, you appear to a lender to be spending to the limit of what you have available. This makes the lender wonder if you are having financial problems.
If you have $10,000 in spending limits with a $100 balance it might seem to be a much better scenario. Does the lender see a responsible person who uses credit sparingly?
Or a person with a large amount of available spending limit who could overspend to the point the payments would be excessive for his income?
- How long you have used credit – 10%
This component can trip up young people. If you have only a few months or a year or two of credit usage you have not established a pattern for the lender to look at.
On the plus side, many lenders do take age into account. Also, there are special credit cards available for help in establishing credit over a period of time.
- How long since you applied for credit? - 10%
Fill out too many applications over a short period of time and you begin to look like a high risk for a lender. Right or wrong, the lending bank may view you as someone trying to quickly access money and they wonder if you have financial problems.
- Types of credit reported
Those with good credit have payments in their credit file to credit card lenders, payments on an auto loan, rental payments in their name, mortage payments, and other installment loans.
This type of credit cards may be possible if you find a lender willing to balance your income against your past credit problems.
You will need to convince the lender that the problems had a specific cause and you have overcome the causes for the bad credit.
Much depends on the reason for the horrible credit. If the missed payments occurred during a time of lost income, it might be explainable. However, if the missed payments were over a period of time when you had the same good income you have today – that might be more difficult to explain.
If the horrible credit was during your student years before you learned to handle finances wisely and you are now part of the work force and paying bills reliably, some lenders will take a chance on you.
If the credit problems are more recent and can only be explained by admitting to poor money management, you may need to consider a sub-prime credit card or a bad credit card for a year or two in order to rebuild your damaged credit.
Obtaining a card with good income but horrible credit is possible even in today's tight credit marketplace. Before choosing a credit card to apply for, look at your credit report to see just what the challenges are. Good income will help balance horrible credit if that bad credit record is in the past.