Is your credit score low, making it hard to get a credit card? Don’t lose hope! This article will show you how to get a credit card even with bad credit and improve your financial future.
If your credit score (also called a CIBIL score in India) is low, getting a credit card can seem like a big challenge. Banks and lenders usually prefer people with good credit scores because it shows they are financially reliable. But this doesn’t mean there are no options for people with bad credit. In fact, there are special credit cards and strategies that can help you fix your credit score and build a stronger financial future.
This guide is for anyone struggling to get a credit card due to bad credit. We’ll explain what bad credit means, how it affects you, and most importantly, which credit cards you can get to help you get your credit back on track. We’ll use real-life examples, facts, and expert tips to help you make smart choices.
What is Bad Credit and How Does It Affect You?
Before we look at solutions, it’s important to understand what “bad credit” really means. In India, your credit score, often called a CIBIL score, ranges from 300 to 900.
- A score of 750 or above is generally considered excellent.
- A score from 650 to 749 is seen as good or average.
- A score from 550 to 649 is considered weak or below average.
- A score from 300 to 549 is usually called “bad credit.”
A low credit score can happen for many reasons, such as:
- Late or missed payments: This hurts your credit score the most. If you don’t pay your loan EMIs or credit card bills on time, your score will drop.
- High credit usage (Credit Utilization Ratio): If you use a large part of your total available credit limit (usually more than 30%), it shows you rely too much on credit, which can lower your score.
- Too many loan applications: Applying for too many loans or credit cards in a short time can temporarily lower your score. It makes you seem like a risky borrower.
- Loan settlement or write-off: If you settled a loan for less than the full amount or if it was “written off” by the bank, it severely harms your credit score.
- Lack of credit history: If you have no credit history at all (like you’ve never taken a loan or credit card), banks might see you as risky. This is often called “no credit,” which is different from “bad credit,” but in both cases, getting a regular credit card can be tough.
Negative Effects of Bad Credit:
A bad credit score can have several downsides, including:
- Difficulty getting loans and credit cards: Banks and financial institutions will be hesitant to lend you money or give you a credit card.
- Higher interest rates: If you do get a loan, you might have to pay very high interest, making the loan more expensive.
- Limited financial products: You might not qualify for important financial products like car loans, home loans, or even some rental agreements.
- Security deposit required: In some cases, you might need to apply for a credit card or other financial products with a security deposit.
- Financial stress: Being denied repeatedly and facing high costs can increase your financial stress.
Credit Cards for Bad Credit: A Ray of Hope
As we’ve discussed, bad credit doesn’t mean the door to credit cards is closed forever. There are special types of credit cards made for people with bad credit. Their main goal is to help you build and improve your credit history.
In India, there are mainly two types of credit cards available for people with bad credit:
1. Secured Credit Cards
Secured credit cards are the best choice for those with a low credit score or no credit history. With these cards, you need to deposit a fixed amount of money (Fixed Deposit – FD) with the bank.
- How it works: The bank issues you a credit card against your FD. Usually, your credit limit will be 80% to 90% of your FD amount. For example, if you put ₹20,000 in an FD, you might get a credit card with a limit of ₹16,000 to ₹18,000.
- Pros (Advantages):
- Easy approval: Since the bank has your FD as security, these cards are much easier to get, even if your credit score is bad.
- Helps build credit: These cards are a great way to build and improve your credit history. When you pay your bills on time, the bank reports your activity to credit bureaus, which slowly improves your credit score.
- Low risk: Since your credit limit is based on your FD, you’re less likely to overspend.
- Interest on FD: You also continue to earn interest on your FD, which is an added benefit.
- Cons (Disadvantages):
- Requires a deposit: You need to deposit a certain amount, which might not be possible for everyone.
- Lower credit limit: Your credit limit is tied to your FD amount.
- High interest rates (if you don’t pay your bill): Even though it’s a secured card, if you don’t pay your bill on time, the interest rates can be as high as unsecured cards.
Some Examples of Secured Credit Cards in India:
Many major banks in India offer secured credit cards. Some popular ones include:
- ICICI Bank Instant Platinum Credit Card: A popular offering from ICICI Bank, issued against an FD of ₹20,000 or more. It offers reward points and other benefits.
- SBI Advantage Plus Credit Card: State Bank of India also issues credit cards against FDs.
- Axis Bank Insta Easy Credit Card: Axis Bank offers instant FD-backed credit cards.
- Kotak Mojo Platinum Credit Card: Kotak Mahindra Bank also provides options in this category.
2. Credit Builder Cards
While “credit builder cards” are not as common in India as a separate product category compared to secured credit cards, some financial companies offer products that focus on helping people with bad credit build a credit history. These are often like small loans or other financial products that report to credit bureaus.
- How it works: These cards or products are not direct credit cards. Instead, they are small loans or programs that let you borrow a small amount and pay it back on time. Their main goal is to report your payment behavior to credit bureaus to build a positive credit history.
- Pros:
- Builds credit history: These are excellent for people who have no credit history at all or a very low credit score.
- Teaches financial discipline: By paying small loans on time, you learn to manage your money well.
- Cons:
- Limited availability: These products are not yet widely available in India.
- No credit card-like features: They don’t offer the shopping convenience or rewards of traditional credit cards.
How to Apply for a Credit Card with Bad Credit?
Applying for a credit card with bad credit can be a bit different. Here are some steps you can follow:
- Know your credit score: First, get your latest credit report and check your CIBIL score. You can get your credit report for free from websites like Paisabazaar, CreditMantri, or directly from CIBIL. Review your report and fix any errors.
- Assess your needs: Decide what kind of card you need. Do you need a secured card to build credit, or do you want to increase the limit on an existing card?
- Consider a secured card: As mentioned above, secured credit cards are the easiest option for bad credit. Research the secured card options from different banks.
- Contact the bank: Directly contact the bank where you have a savings account or where you plan to open an FD. Ask them about their secured credit card options and how to apply.
- Prepare necessary documents:
- ID Proof (Aadhar Card, PAN Card, Passport, Driving License)
- Address Proof (Aadhar Card, utility bills)
- Income Proof (though less critical for secured cards, some banks may still ask)
- Fixed Deposit receipt (for secured cards)
- Apply online or offline: You can apply online through the bank’s website or visit their branch to apply offline. The online process is often faster and more convenient.
Pro Tip: Before applying, make sure you have all the necessary documents ready. This will help make the process smooth.
How to Use a Credit Card Responsibly to Improve Your Credit Score?
Getting a credit card is only half the battle. The real challenge is using it responsibly so your credit score actually improves.
- Pay on time: This is the most important rule. Always pay your credit card bill on or before the due date. Even one missed payment can severely damage your credit score. Consider setting up auto-payments or using reminders.
- Keep credit usage low: Don’t use more than 30% of your total credit limit. For example, if your credit limit is ₹20,000, try to keep your monthly spending below ₹6,000. If you spend more, make multiple payments during the month to keep your outstanding balance low.
- Pay the full balance: Instead of just making the minimum payment each month, always pay the full outstanding balance. This helps you avoid interest charges and also signals to credit bureaus that you are a responsible borrower.
- Maintain a long credit history: Keep your old accounts open, even if you don’t use them. A long credit history is positive for your credit score.
- Check your credit report regularly: Check your credit report at least once a year. Immediately address any errors or fraudulent activity and get them corrected.
- Avoid applying for too much credit at once: When you apply for credit, it creates a “hard inquiry” on your credit report, which can temporarily lower your score. Only apply when you genuinely need credit.
Credit Cards for Bad Credit: What to Expect?
When you apply for a credit card with bad credit, there are a few things you should expect:
- Lower credit limit: Your credit limit will be low at first. This is fine, as your goal is to build credit, not to spend a lot of money right away.
- Annual fees: Some secured or credit-builder cards might have an annual fee. Check these fees before you apply.
- Fewer rewards and benefits: These cards usually don’t offer attractive reward points, cashback, or travel benefits like premium credit cards. Their main purpose is credit building.
- Limited features: You might not get perks like lounge access or complimentary insurance.
- Slow improvement: Your credit score won’t improve overnight. It takes patience and continuous responsibility. You’ll usually see significant improvement after 6-12 months of regular and on-time payments.
How to Avoid Bad Credit and How to Improve It?
While this article focuses on credit cards for bad credit, the best approach is to avoid bad credit in the first place or actively work to improve it.
Tips to Avoid Bad Credit:
- Pay bills on time: Always pay your loan EMIs, credit card bills, utility bills, and any other financial obligations on time.
- Keep credit usage low: Avoid using more than 30% of your credit limit.
- Avoid too many loan applications: Only apply for credit when you truly need it.
- Check your credit report regularly: Keep an eye on your credit report for any errors or fraud.
- Maintain a diverse credit portfolio: Having a mix of unsecured loans (credit cards) and secured loans (home loans, car loans) can be good for your credit score.
Tips to Improve Bad Credit:
- Pay off all outstanding bills: First, focus on paying off all your pending bills and overdue payments.
- Get a secured credit card: As we’ve discussed in detail, this is an excellent tool for credit building.
- Consider small personal loans: If you qualify, take a small personal loan and pay it back on time. This will add diversity to your credit history.
- Contact a credit counselor: If your situation is very bad, consider seeking help from a professional credit counselor. They can help you create a repayment plan and improve financial habits.
- Talk to your bank: If you’re facing financial difficulty, contact your bank and explain your situation. They might offer some relief in your payment plan.
Remember, a credit score is not permanent. It changes with your financial behavior. With continuous effort and responsibility, you can definitely improve it.
Frequently Asked Questions (FAQs)
Here are some common questions people have about bad credit and credit cards:
Q1: My CIBIL score is low. Can I get a credit card?
A1: Yes, absolutely! While it might be hard to get a regular unsecured credit card, you can apply for options like secured credit cards (against a Fixed Deposit) or credit builder cards. These are specially designed for people with bad credit to help them build and improve their credit history.
Q2: What is a secured credit card?
A2: A secured credit card is one where you need to deposit a fixed amount of money (a Fixed Deposit) with the bank as collateral for your credit limit. This deposit acts as security for the bank, making them comfortable issuing a card even to applicants with bad credit.
Q3: What credit score do I need for a credit card?
A3: Generally, banks prefer a CIBIL score of 750 or higher for credit cards. However, some banks might consider applicants with scores of 650-700. For bad credit (below 550), secured cards are the most practical option.
Q4: How can I get a credit card with no credit history?
A4: If you have no credit history (meaning your CIBIL score is “NA” or “NH”), a secured credit card is the best starting point. You can also consider student credit cards (if you’re a student) or small credit-builder schemes offered by some banks.
Q5: What are the benefits of using a credit card with a bad credit score?
A5: The main benefit is that it helps you build and improve your credit score. When you pay your bills on time, banks report this to credit bureaus, strengthening your credit history. This helps you qualify for better loans and credit card products in the future.
Q6: What are the interest rates on credit cards for bad credit?
A6: If you don’t pay the full outstanding balance each month, interest rates on credit cards for bad credit are usually as high as on unsecured cards, which can be 35-45% per year. That’s why paying on time and in full is crucial.
Q7: How quickly can my credit score improve?
A7: Improving your credit score takes time. If you use a secured credit card responsibly and make on-time payments, you can see significant improvement in 6-12 months. With continuous positive financial behavior, it will keep getting better.
Q8: Can I get an unsecured credit card with bad credit?
A8: It’s very difficult. Most unsecured credit card issuers prefer applicants with good credit scores. Some lenders might offer unsecured cards with high interest rates or very low limits, but they are generally not the best way to build a responsible credit history. A secured card is a safer and more effective path.
Conclusion and Your Next Steps for a Better Financial Journey
Having a bad credit score can be frustrating, but it’s not the end of your financial journey. As we’ve seen, there are credit cards specifically designed for bad credit, like secured credit cards, which give you a chance to rebuild and improve your credit history.
The key is to use these cards responsibly:
- Always pay your bills on time.
- Keep your credit utilization low.
- Check your credit report regularly.
Patience, discipline, and consistency are essential for improving your credit score. It’s a marathon, not a sprint. Over time, your CIBIL score will improve, and better financial products and opportunities will open up for you.