The credit cards designed for consumers with poor credit rating used to be available from several major lenders. Credit was flowing freely and lending institutions were interested in acquiring as many credit customers as possible.
Even major credit lending banks would forgive some poor credit if the late payments showing on your credit report were balanced by timely payment on accounts in recent months.
If you had bad credit with multiple reports of non-payment or late payments the major credit lenders would refer you to a secured credit card but a small amount of poor credit was tolerated.
Lending Practices Have Changed
The downturn in the economy led to a credit crisis and lenders have responded by tightening their requirements for people who are applying for new credit accounts.
Today only consumers with good credit should both to apply for credit cards from the big banks. Lenders no longer separate “poor” credit from “bad” credit and now any black mark on your credit report is a major problem when you apply for new credit cards.
Applying for a Credit Card With Poor Credit
The best option is to visit your local bank branch. If you have had accounts in good standing at your bank for some time, the bank may be willing to overlook a small amount of poor credit and take a chance on issuing a new credit card in your name.
If you are able to explain your past credit problems truthfully as a temporary financial challenge caused by a medical problem, divorce or job loss, you may be judged a good risk.
If you have poor credit you may need to accept terms from your lender that are not ideal. Credit problems label you as high risk for a lending institution and you may find your new account has a higher interest rate than you expected.
Overcoming High Interest and High Fees
Realistically, you are not in a position to bargain for better rates. Your goal is to be approved for a new account and it’s possible the spending limit on the new card may be low.
Using that new account in a responsible way by charging purchases to it monthly and paying the charges off on time will rebuild your damaged credit file.
As you re-establish yourself financially your lender may be willing to raise the spending limit which provides you with even more leverage to improve your credit scores.
Not only will you pay a higher interest rate if you have poor credit, but your credit card will probably have an annual fee.
In addition, fees for over limit charges and late payments may be substantial and should be avoided diligently. Only responsible use of credit can overcome past problems that are contained in your credit file.
If you use a new credit account wisely, the reports by the lender will reflect creditworthiness and those reports of timely payments will reduce the weight of the poor credit in past years. Keep in mind that you should never use that new account to pay off your old debt.
Using a New Account When You Have Poor Credit
The goal for you should be to increase your important credit score. This will allow you to qualify for better credit card terms in the future and to qualify for other credit such as a car loan or mortgage.
Know what the fees are for charging more than the spending limit of your account and for paying late – and avoid those fees altogether. You can inform your lender not to approve any charges that would exceed your credit line if you aren’t certain you will track the account closely.
Never pay the minimum amount due each month. Pay off the total balance monthly if possible or spread purchases out over several months. Credit rating agencies consider it poor financial management to pay only the small minimum due on credit cards.
Though your monthly bill may list only $20 due in payment, paying that low amount each month will not help you build better credit scores.
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If you are successful in obtaining a credit card while your credit rating is poor, wise use of that new account for one year may be enough to be approved for a major credit card with better terms. In the beginning you may need to settle for higher interest rates and annual fees.
However, using that new high risk account wisely will improve your credit and eventually be able to obtain rewards cards and accounts with no annual fees and competitive interest rates.