Credit Cards for People With Poor Credit
Credit and debit cards are now a more popular way of paying for goods and services than cash, and for many people are a vital part of day to day finances. The increasing popularity of online shopping means that access to plastic is almost essential for the UK's increasingly connected population.
Unfortunately though, it can be hard for people with poorer credit ratings to get approved for a credit card, so if you have impaired credit then will you be left out in the cold?
Risk Based Pricing
Some cards on the market use a process called risk based pricing when evaluating an application. This basically means that not everyone whose application is approved will receive a card with the same interest rate. People with better credit scores will get a lower rate than those with some history of credit problems.
These kinds of cards used to be widespread, as risk based pricing meant that card issuers could advertise an eyecatching low rate that only applied to people with excellent credit ratings. Changes in the law mean that adverts must now show the rate that two thirds or more of applicants can expect, and as this makes risk based cards look less attractive in advertisements, they are now on the decline.
Starter Cards
Some credit cards are marketed as being suitable for people who are new to credit and so don't have any financial history at all, good or bad. These starter cards, including the Capital One Classic and Barclaycard's Initial card will also be attractive to people with some adverse information on their credit file. They will charge a higher interest rate than mainstream cards, and will tend to have a lower credit limit, but they are nonetheless general purpose credit cards and can be used in exactly the same way as any other.
Vanquis
Vanquis, part of the Provident group, have recently launched the Abacus Visa card which is specifically aimed at people with bad credit ratings and/or low incomes, in other words exactly the kind of person who would struggle to get a card from any other issuer. The (big) drawback with the card though is the extremely high interest rate of 39% typical APR or even higher - it's reported that the rate could go as high as 69% for some applicants. This makes the Vanquis card a bad choice for anyone intending to carry a balance.
That said, if you'll be paying off your balance every month and so avoiding interest charges, then it may be worth considering if you have no other options.
Secured or Prepaid Cards
Prepaid cards aren't really credit cards at all, but a kind of payment card that you have to 'pre load' with funds before you can use it. Once money is credited to your account, the cards can be used in the same way as any other Mastercard or Visa. The big difference is that it's impossible to spend money you haven't got, and so this makes them a very safe option for the issuer, and application approvals run at close to 100%.
The disadvantage of these cards is that most will charge a monthly administration fee or one based on how much you spend, or even in some cases a hefty fee just for applying for one. Examples of prepay cards with no application fee include the 360money card and the Amex Travellers Cheque Card which is intended to be used overseas but will work just as well in the UK.
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