Credit Cards for Bad Credit: Options and Considerations
Having a poor credit history can make it challenging to access financial products, including credit cards. However, there are still options available for New Zealanders with bad credit who need access to credit. This article explores the credit card options for those with bad credit in New Zealand, along with important considerations and strategies for improving your financial situation.
Understanding Bad Credit
Before delving into credit card options, it’s crucial to understand what constitutes “bad credit” in New Zealand. Your credit score is a numerical representation of your creditworthiness, based on your financial history. In New Zealand, credit scores typically range from 0 to 1000, with higher scores indicating better creditworthiness.
Factors that can negatively impact your credit score include:
- Late or missed payments on bills or loans
- Defaulting on debts
- Multiple credit applications in a short period
- Bankruptcy or insolvency
If you’re unsure about your credit status, you can obtain a free credit report from one of the three main credit reporting agencies in New Zealand: Centrix, Credit Simple (Dun & Bradstreet), or Equifax NZ.
Credit Card Options for Bad Credit
While options may be limited, there are credit cards available for those with bad credit in New Zealand. Here are some potential choices:
1. Q Mastercard and GEM Visa
These cards are often more accessible to those with challenged credit histories. However, they come with high interest rates, typically around 25.99% p.a. It’s crucial to understand that if you don’t repay the full balance each month, you’ll incur significant interest charges.
2. Westpac Fee Free Mastercard
This card offers a lower interest rate compared to many other options for those with bad credit. However, approval criteria may still be strict.
3. Secured Credit Cards
While less common in New Zealand, some banks may offer secured credit cards. These require a cash deposit as collateral, which then becomes your credit limit. This option can be a stepping stone to rebuilding your credit.
Considerations When Applying for a Credit Card with Bad Credit
Before applying for a credit card, consider the following:
- High Interest Rates: Credit cards for bad credit often come with high interest rates. Be prepared to pay more in interest if you carry a balance.
- Lower Credit Limits: You may be offered a lower credit limit initially.
- Annual Fees: Some cards may charge higher annual fees.
- Impact on Credit Score: Each credit card application can temporarily lower your credit score. Avoid making multiple applications in a short period.
- Ability to Repay: Carefully consider whether you can afford to repay any debt you accumulate. Taking on more debt when you’re already struggling financially can worsen your situation.
Strategies to Improve Your Chances of Approval
If you’re planning to apply for a credit card despite having bad credit, here are some steps to improve your chances of approval:
1. Check and Fix Your Credit Report
Obtain your credit report and check for any errors. If you find inaccuracies, report them to the credit reporting companies for correction.
2. Start Saving
Lenders look at your current financial behaviour. Demonstrating that you can save money regularly shows financial responsibility.
3. Pay Bills on Time
Consistently paying your bills on time can gradually improve your credit score.
4. Limit Credit Applications
Multiple credit applications in a short period can negatively impact your credit score. Only apply for credit when necessary.
5. Consider a Debit Card Alternative
If you’re struggling to get approved for a credit card, consider using a debit card instead. This can help you manage your spending without the risk of accumulating debt.
Rebuilding Your Credit
While seeking a credit card for bad credit can provide short-term financial flexibility, it’s important to focus on rebuilding your credit in the long term. Here are some strategies:
- Make Payments on Time: Consistently paying bills and loan repayments on time is crucial for improving your credit score.
- Pay Credit Card Balances in Full: If you do get a credit card, aim to pay the balance in full each month to avoid interest charges and demonstrate responsible credit use.
- Limit Payday Loans: Frequent use of payday loans or quick finance options can negatively impact your creditworthiness.
- Cancel Unused Credit: Multiple unused credit accounts can negatively affect your credit score. Consider cancelling credit cards or store cards you’re not using.
- Seek Financial Advice: Organisations like Debtfix, Ngā Tāngata Microfinance, CAP, and Good Shepherd offer free services to help manage debts and improve financial situations.
While having bad credit can limit your options, there are still credit card possibilities available in New Zealand. However, it’s crucial to approach these options with caution and a clear understanding of the terms and potential risks involved. Focus on rebuilding your credit through responsible financial management, and consider seeking professional advice to improve your overall financial health.
Remember, a credit card should be a tool to help manage your finances, not a solution to underlying financial problems. If you’re struggling with debt, reach out to financial counselling services for support and guidance on improving your financial situation.