How to Apply for a Credit Card with a Bad Credit Score

Poor financial moves, such as forgetting to pay a bill or missing payment deadlines, can leave black marks on your credit score. Why does that matter? Well, a poor credit score can make it tricky to borrow money down the track, or to get approved for a credit card. Canstar explores whether you can still apply for a credit card with even though your credit score is far from perfect.

Despite what it might feel like, if you have a bad credit score, it’s not all doom and gloom. There is light at the end of the tunnel. There are still reputable lenders out there that will give you a second chance at being a responsible borrower. Before you do anything, though, make sure you do your homework. You don’t want to end up in an even worse financial position! Be prepared with good reasons why lenders should give you access to more credit despite your financial history.

What is a credit report?

A credit history report summarises your financial history and includes payments for credit cards, mortgages, car finance and hire purchases. The report might also include information about utility payments, such as electricity, gas and phone accounts. Defaults when a payment was overdue by more than 30 days, or when the lender took action to recover the payments, stay on your payment record for up to five years. Your repayment history, where you did not default, can stay on your credit record for up to two years.

How to get approved for a credit card with bad credit:

Here are four steps to take to improve your chance of getting approved:

1. Fix your credit report

First things first, to figure out how to improve your credit rating, you need to find out your financial history. You can’t improve your credit rating until you know what black marks you need to fix. And, you never know what it might uncover. Your bad credit rating might be down to something as minor as a phone bill that you forgot to pay, or even an administrative error.

It’s easier to fix your credit report now than to apply for a credit card and be rejected, because being rejected is just one more black mark on your credit report.

Three credit rating companies in New Zealand let you access a free credit history report:

• Centrix: Centrix.co.nz. If you complete an online application, Centrix advises that it will provide you with a free copy of your credit report, usually within 48 hours. You can find out more information here.
• Credit Simple is a credit reporting agency for consumers that falls under the umbrella of credit report agency Dun & Bradstreet.
• Equifax NZ (formerly Veda). You are entitled to get a copy of your credit report for free (to be supplied within 20 business days). Compare the Equifax products here.

Canstar’s guide on credit reports provides more detailed information on how to check your credit score and why you should.

2. Assess your employment situation

A lending institution is not legally allowed to give you a credit card unless you have enough annual income to meet the minimum repayments for that card’s credit limit. If you can’t afford to repay your balance in full each month, you may be better off using a debit card than getting into debt.

If you don’t already have a regular job or reliable source of income, major banks and other credit lending institutions are likely to reject your card application. This creates another black mark on your credit score, so hold fire on applying for a credit card until you have secured stable employment.

What counts as stable employment? If you’re employed as a casual or contractor, you may need to demonstrate a long-standing working relationship (of more than 12 months) with your current employer. If you have had multiple employers in a short span of time, that usually won’t help your case if you’re applying for a credit card and have a chequered financial history. Most lenders are looking for one or two stable sources of income to repay the credit card, rather than several smaller jobs.

3. Pay off other loans or credit

Lenders usually approve credit cards, or other types of loans, based on your repayment history of previous loans. When applying for a credit card, you’ll need to demonstrate a consistent history of meeting required repayments over past months. In the case of other credit cards, you’ll have to show that you have been making more than the minimum monthly repayments.

Compare Credit Cards with Canstar

If you’re currently comparing credit cards, the comparison table below displays some of the low-rate credit cards currently available on Canstar’s database for Kiwis looking to spend around $2000 per month (some may have links to providers’ websites). The products are sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards. Canstar may earn a fee for referrals.

4. Start saving

When you apply for a credit card with bad credit, lenders look at your current bank statements. If you’ve overdrawn your account recently, or if any direct debits have been dishonoured because there wasn’t enough in your account at the time, these things do not look good to lenders.

It’s essential to prove that you are not spending all of your income on your expenses and other debts, and that you are saving a small amount each week. This says to the lender that you have the finances to repay a credit card if they give it to you.

Need some ideas for how to save money? Try out our 30 ways to save money.

You might even consider whether a debit card would meet your needs better than a credit card.

I keep getting rejected for a credit card – why?

If you keep on applying for credit cards knowing you have a bad credit rating, banks and credit institutions will keep rejecting your application. Lending institutions have criteria that they have to follow by law – and they can’t give you a credit card unless you meet those criteria.

If you still feel a credit card is the best finance option for you, make sure you check out what cards are on the market, so you apply for a card that best suits your needs. Canstar’s free credit card comparison tools rate products based on fees, rates and features, to help you get a fuller picture of your options. Compare the New Zealand credit card market, below.

Compare credit cards with Canstar