With more than 8.03 Crore credit cards in circulation across the country, credit cards enjoy significant popularity in India. Unlike debit cards, credit cards are not linked to bank accounts, and provide a line of credit you can use to purchase items. You must repay this amount within a certain period, and if you fail to clear your outstanding dues, you will incur late fees and penalties.
Banks and financial institutions assess the borrower’s creditworthiness before issuing a credit card. This risk evaluation is done based on your credit history, annual income, and existing debts and liabilities. Your credit score reflects your creditworthiness, and how responsible you have been with credit. Any score above 750 is generally considered a good credit score, and lenders approve such applications quickly, while providing high credit limits. However, what happens if you have a low credit score?
You can still get a credit card with a bad credit score or history. Let us know more about credit cards for bad credit, and how you can get your hands on such credit cards.
In India, several credit reporting agencies, such as TransUnion CIBIL, Experian, Equifax, and CRIF High Mark, calculate and provide your credit score to lending institutions. These agencies review your financial history and health, and assign a three-digit numerical score, which is your credit score. Lending institutions consider 750 as a good credit score; however, you can still obtain a credit card with a lower credit score of around 600.
There are several ways in which you can get credit cards for bad credit, including opting for a secured credit card, and applying for a credit card with your primary bank.
When you have access to credit, you must manage your finances properly. Your credit score measures and analyses your financial health, and if you haven’t been responsible with your finances, you end up with bad credit. This makes you a high-risk borrower, and lending institutions will be apprehensive about sanctioning a credit card.
Because of poor credit management, you will be assigned a low credit score. Here are a few reasons why you can have a bad credit score.
Late or missed payments on existing loans and credit cards.
Multiple hard inquiries by lenders.
Written off or settled accounts.
Any of the above-mentioned reasons can negatively affect your credit score, and discourage lending institutions from approving your credit card applications. However, certain lenders provide credit cards for bad credit, although these cards may come with high interest rates and other charges.
If you aren’t certain whether you should apply for a credit card for bad credit, here are a few points you must consider.
Before applying for a loan or credit card, it is vital that you check your credit score to determine your eligibility. If you have a credit score of 750 or above, you can apply for a mid-level or premium credit card. However, if you have a credit score of 600-650, selecting credit cards with more lenient underwriting conditions is prudent. This allows you to make repayments on time and gradually improve your credit score.
If you haven’t managed your finances properly in the past, and have defaulted or missed payments, it is unlikely that you will be approved for a mid-level credit card. This is because a good repayment history shows you as a trustworthy borrower, and lending institutions prioritise those who demonstrate their creditworthiness. You can, however, opt for credit cards for bad credit, and build a solid repayment history.
Having bad credit does not mean you cannot get access to a credit card. You might not be entirely at fault for having bad credit, and lending institutions understand there may be extenuating circumstances.
For this reason, subprime borrowers have two options:
Secured Credit Card: These credit cards are provided against collateral or security, such as fixed deposits.
Unsecured Credit Card: Lending institutions offer unsecured credit cards to those with poor credit, and these typically come with high interest rates.
Lenders mitigate the risk by providing credit cards against collateral or security that is pledged, usually in the form of fixed deposits or mutual funds. These credit cards come with nominal interest rates, and allow you to build your credit score. In practice, these are similar to ATM cards; you can only withdraw up to a certain limit – usually 80 percent of the FD amount. This inculcates financial literacy and responsible spending – two aspects that will help you in your financial journey.
However, you must still make your monthly payments on time, and you may be charged late payment fees and interest if you fail to make timely payments.
Lenders also provide unsecured credit cards for bad credit, and this may be a good option for those who are just starting their financial journey, and simply lack a credit history. However, you must remember that these credit cards usually come with high annual and renewal fees. You may be charged other fees, such as account opening fees, and these charges can increase your credit utilisation ratio.
Another aspect you must consider is the annual percentage rate or APR. Unsecured credit cards for bad credit come with extremely high APRs, and heavily penalise you if you carry a balance after the payment due date. This makes them extremely risky for borrowers without a stable income.
By choosing the right credit card, you can significantly improve your credit profile – and your chances of obtaining future loans and credit cards. Here is how you can choose the ideal credit card if you have bad credit.
Nominal Fees and Charges: You must select a credit card with nominal fees and charges that offers a low APR. This allows you to gradually build your credit profile without incurring hefty fees and penalties.
Provide On-Time Reports to Credit Bureaus: You must opt for a lending institution that provides on-time reports to credit rating agencies. You can quickly improve your credit score by consistently making on-time payments, as the institution reports the same to the credit rating agency.
Provision to Upgrade Credit Card: If you opt for a secured credit card, select lenders will offer you the opportunity to ‘graduate’ to an unsecured credit card by making timely payments. This is the ideal credit card for bad credit, as you can improve your credit profile, and become eligible for a good, unsecured credit card in the future.
Once you understand your options, you can make an informed decision about the type of credit card you wish to obtain. Here is how you can apply for – and avail of a credit card.
It is easier to get a secured credit card if you have bad credit than an unsecured credit card. Additionally, you can get a secured credit card with favourable terms, such as a high credit limit and nominal interest rate. You can approach your existing or any other bank, and apply for a secured credit card by opening a fixed deposit.
Before applying for a card, you must compare the features and terms of secured credit cards offered by different financial institutions to find the best option.
Unsecured credit cards specifically designed for subprime borrowers allow you to apply for – and obtain credit cards for bad credit. You can apply for an unsecured credit card online, although you may have limited options. However, it is crucial that you choose a credit card with low fees and charges, and comes with a reasonable APR.
Some of the best credit cards for bad credit include:
ICICI Bank Platinum Credit Card
Axis Bank Insta Easy Credit Card
SBI Unnati Credit Card
YES Prosperity Rewards Credit Card
If you have a low credit score, you can apply for a secured credit card by opening a fixed deposit, and get easy access to a credit card. This also allows you to build your credit profile over time. Alternatively, if you are a student, you can apply for a student credit card.
Yes. You can apply for a secured credit card, or an unsecured credit card marketed to subprime borrowers.
If you’ve previously defaulted on loans or credit card payments, you still have an opportunity to make amends, as TransUnion CIBIL’s records of defaulters are not permanent. These records are kept for 5-7 years; after this period, the records will not adversely impact your credit score.
Various banks, such as the State Bank of India, Kotak Mahindra Bank, ICICI Bank, YES Bank, and Axis Bank, offer credit cards to individuals with bad credit. Credit cards for bad credit will be sanctioned against the fixed deposit amount.
You must remain patient, diligent, and committed to improving your credit profile. You can achieve this by making timely payments of credit card bills, EMIs, and other loans. You should also check your credit report regularly, and maintain a low credit utilisation ratio. Furthermore, it is recommended that you do not apply for multiple credit cards within a short timeframe, and maintain a healthy mix of secured and unsecured credit.
While different lenders have different eligibility criteria, by maintaining a credit score of 750 or above, you will receive quick approval for a new credit card.
Typically, it is difficult for an individual with a credit score of 550 to obtain a credit card. However, they can opt for a secured credit card, or talk to their primary bank to obtain a credit card with high fees.