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Credit Cards Poor Credit

Michelle Brooks

Michelle Brooks

Financial Advisor

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Now, more than ever, when the average American family owes more than $8,000, having credit serves as a reflection of your daily habits, financial goals, and overall financial responsibility. To no surprise, many people in the United States have poor credit. However, poor credit can be due to many reasons, some of which may be accidental. Although accidental, these financial choices will follow you for years to come and will show up as a reflection on your credit score.

This is nothing to panic or be upset about because there are numerous pricing options for people with poor credit, depending on your needs and goals such as, renting a home, taking out a loan, purchasing a car, medical emergencies, etc. However, the chances for success when taking out a loan or purchasing a car on poor credit may be somewhat difficult due to credit history. This is nothing to worry about!

As is best in any scenario, it is always advised to become aware of the possible circumstances of poor credit and the best available options for a person with poor credit. Therefore, let us say you have an emergency and need to take out a credit card under your name, but you are hesitant to do so because of your credit score. In this article, we will be discussing credit cards in correlation to poor credit and how you can jumpstart your credit score to ensure a positive credit future.

 

What is Considered Poor Credit Score

Before we can dive into what is considered “poor credit”, it is important to understand how poor credit is determined, how it can impact your future, and what it tells a potential lender about your characteristics as a person.

 

How Is Poor Credit Determined?

Your credit score is used by potential lenders to determine whether you are a good candidate to extend a credit line to or whether or not they should trust you with their service, such is the case with cellphone carriers or a rental communities. Now, simply because a person has poor credit does not mean they will be declined. Although it can be somewhat more difficult to be approved, in most cases having poor credit means the lender can ask for extra fees or a deposit.

Now, poor credit is different than bad credit. Poor credit is anything between 500 to 579. Whereas, bad credit is anything from 300-499. The good news is it’s better to have poor credit than bad credit. Poor credit is a glimpse into the potentiality that you, as an individual, are working on your credit score. With this, poor credit is determined on numerous factors which give the lender an overall outlook into the credit holders personality.

Poor credit is determined by:

  1. Credit length – This is the length of how long you’ve had credit. A new person beginning to increase their credit may have a low credit score simply because they have only had it for 6 months. The great thing is shortly after having credit for a year, your credit score will continue to raise steadily, if all credit cards and loan payments are paid on-time.
  2. Credit Availability – This factor is approximately 30 percent of your FICO score. This is determined based off your available credit to how much you spend. If you owe more than is available under your name, your credit will surely suffer. It is best to always have at least 50% of your credit available, it will appear much more positive to the bureaus. We like to refer to this as the Credit Utilization Sweet Spot.
  3. Credit Diversity, New Accounts, Applications – These factors are important when tallying up your credit score. For example, the amount of credit accounts you have applied for compared to how many times you have been declined can impact your credit score. In fact, applying for a new credit line, without a guarantee that you will get it, can affect your credit score from 1 to 2 points. With that said, having a new account can also affect your credit score as well as your credit diversity. It is always best to have numerous credit lines for the bureaus to notice you can manage more than one. However, this is only best if you know you are financially stable to do so.
  4. Paying on Time – If there is one aspect of having credit that can hurt your credit more than anything it is being late on a payment or having a service turned off. Ensuring payments on time shows the credit bureaus that you, as an individual, are responsible enough to keep track of your minimum payments and when they are due. Always pay your credit cards on time!

 

How Poor Credit Can Impact Your Future?

Of course, poor credit will impact your future differently than good or great credit. These are the many ways in which poor credit will impact your future:

  • With poor credit, loan applications and credit applications may not be approved. More exclusive services and credit cards may decline your application for a new credit line.
  • With a poor credit history, landlords may not approve rental applications. If they do approve your application, you may have to pay a larger security deposit.
  • A poor credit line means more security deposits when applying for numerous services. These services include electricity, phone, cable, and other utility services.
  • You cannot get a cellphone contract if you have poor credit. Cell phone companies check your credit. Their reasoning is that since they are extending a month of service, they need to know if you will be reliable enough to pay for the service.
  • With a poor credit line, you may be denied for certain job positions. Work opportunities in management or finances sometimes do a credit check to see if you have outstanding bills, bankruptcy, or high amounts of debt.
  • Debt collectors calling you is a negative side effect of poor credit, only if you have outstanding debt payments.
  • Insurance companies also do a credit check to determine your insurance premium.
  • Starting your own business with poor credit can be somewhat difficult when trying to take our bank loans and receive financial backing from other businesses.
  • Of course, when trying to purchase a car on bad credit, it will be somewhat difficult unless you purchase it through a specific vendor that overlooks a low credit score. If accepted, you may have to pay much more of a deposit and high interest rates.

 

What Poor Credit Says About Your Personality Trait?

There are numerous factors that determine poor credit. When a lender checks your credit score there are numerous factors that tell the lender a wealth about your financial responsibilities, your past, and even a glimpse into the future.

However, if you have a poor credit score due to having one credit line and it being opened less than a year, they will see that is well. This circumstance, although you would be considered a “new” credit holder, looks much better than having numerous outstanding debt payments. Nonetheless, your credit history gives the potential credit lender an insightful look into your characteristics as an adult. These characteristics include:

 

  1. Financial responsibility.
  2. Financial goals.
  3. Financial history.

You Can Get Back on Track

No matter how low your credit score is, you can always get back on track as long as you pay your payments on time, do not have outstanding debt, and always pay more than what you owe. With that said, unless you have filed for bankruptcy or have a lot of debt, you can increase your credit score steadily simply through the benefit of credit cards for poor credit.

Advantages and Disadvantages of Credit Cards for Poor Credit

We always advise to take the appropriate measures, establish smart financial habits, and developing a stable budget before opening a credit card, especially if previous credit cards were difficult to keep up with. With the information that we have covered thus far, you might still be wondering whether credit cards for poor credit is the smartest choice for your right now. In light of this, we would like to share some of the advantages and disadvantages that come for those who open credit cards for poor credit.

 

Advantages:

  • If it is a secured credit card, you can steadily and easily raise your credit score through an extended period.
  • With secured credit cards, there sometimes is no annual fees and you can decide how much or how little you put onto the card.
  • Many credit card companies allow you to view your credit score at least once a month to keep track of your progress.
  • With full and steady monthly payments, you can qualify for an increase.
  • Some credit card companies have more relaxed guidelines.
  • Some credit cards for people with poor credit even give you cash back for groceries, gas, internet services, etc.
  • Many credit card companies for people with poor credit offer a pre-qualification option that will not impact your credit.
  • Low account opening fee.
  • Some credit card companies for people with poor credit have an initial credit limit to ensure you keep your credit usage low.

Disadvantages:

  • Your interest rate on poor credit cards may be much higher than other credit cards, especially the moment you miss a payment or do not pay in full.
  • Late fees are typically higher with credit cards for poor credit.
  • If you have a specific credit card for poor credit, a low spending limit may be a downfall especially if you planned to make a major purchase with it.
  • Credit cards for poor credit are stricter, due to the risk factors involved with issuing a credit card to a poor credit holder.
  • You may only be able to use the credit card at specific places or venues.
  • If your credit card happens to be a secured credit card, you may have to spend more money out of pocket on the security deposit.
  • There may be application fees, processing fees, and annual fees higher than a regular credit card.

What to Look Out for in Credit Cards for Poor Credit 

Of course, not everything is always a pleasant as it seems in the bold print. When considering getting a credit card for poor credit, it is essential to read the fine print. Hidden in the fine print there are many things to look out for:

  1. The highest interest rate on the card, if you do not pay monthly in full.
  2. The monthly payment on the card.
  3. Monthly fees and annual fees on the card.
  4. Fees to take our cash from your credit line.
  5. Potential places you cannot use your card.
  6. Introductory interest rates and potential charges.
  7. Loyalty points or rewards, if any.
  8. How having this credit card affects your credit.
  9. Potential incentives for having the card.
  10. Potential fees for canceling the card.

Verdict

Although acknowledging your current credit score state, for many people, is fearful and nerve-wracking, having low credit is nothing to be ashamed about. Most importantly, if you do have low credit it is essential and beneficial to begin creating a history that showcases your credit as increasing and not decreasing. When asking for a credit line, credit loan, or applying for a car or an apartment, having a credit line that is in good standing and showcases positive process is important.

With this said, sometimes emergencies happen, and a credit line is important to have. When applying for a credit card for poor credit history, there are many important facets and aspects to look out. Most importantly, secured credit cards allow for consumers to have a more secure way of spending their money and lenders to begin building a relationship with the credit holder. Soon enough, you will be able to extend your credit line.

As a result of you beginning to better your credit, you will soon be able to enjoy the many benefits that come from an improved credit score. Whether it is purchasing a car, applying for a cellphone plan, or taking out other forms of credit, a positive credit score will always help. Do not fear your poor credit score, begin to better it today with a credit card for poor credit score.