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The CIBIL score is one of the most important criteria that banks and financial institutions consider before approving or rejecting a credit card application. However, it is now possible to obtain a credit card with a bad credit history too. Whether you're new to credit or rebuilding your financial standing, you can get access to credit cards regardless of your CIBIL score. 

Credit Card Options for Bad Credit

Even individuals with less-than-ideal credit scores have options for obtaining a credit card.

1.Secured Credit Cards

Unlike traditional credit cards, secured credit cards require a security deposit, typically in the form of a fixed deposit (FD) or mutual funds. The credit limit is usually capped at a percentage of the deposited amount. Using a secured card responsibly and making timely payments can help you build a positive credit history and gradually improve your credit score.

2.Unsecured Credit Cards

These cards cater to individuals with lower credit scores or limited credit history. Compared to secured cards or those offered to individuals with good credit scores, unsecured cards for bad credit generally have significantly higher APRs, making borrowing more expensive. These cards might have annual fees, balance transfer fees, and other charges, further increasing the overall cost of using the card.

3.Student Credit Cards

Designed specifically for students with limited credit history, student credit cards often have lower credit limits and stricter eligibility criteria. However, they can be a good starting point for building credit responsibly.

4.Store-Specific Credit Cards

These cards, offered by various retail chains and partnered banks, provide rewards and discounts on purchases made at specific stores. However, these might have limited usage outside those stores.

Factors to Consider When Choosing Credit Cards with a Low CIBIL Score

  • Focus on Low Annual Fees: While some unsecured cards specifically cater to individuals with bad credit might have annual fees, compare options and choose cards with lower or waived annual fees to minimise the overall cost.

  • Consider Rewards Programs: While not all cards in this category offer reward programs, some might provide cashback or points on purchases. If you plan to use the card regularly, opting for a card with a rewards program can offer some benefits.

  • Read the Fine Print: Before applying for any credit card, thoroughly read the terms and conditions, including interest rates, fees, late payment charges, and other relevant details, to avoid any surprises later.

How to Build or Maintain Your Credit Score

Obtaining a credit card with bad credit is merely the first step. Responsible management is crucial to improve your credit score in the long run and avoid additional financial complications. Here are some key strategies to consider:

  • Make Consistent On-time Payments: This is the single most critical factor influencing your credit score. Consistent on-time payments demonstrate your commitment to fulfilling financial obligations and significantly improve your creditworthiness. Even a single missed payment can negatively impact your score.

  • Keep a Low Credit Utilisation Ratio: The credit utilisation ratio refers to the percentage of your credit limit utilised. Ideally, aim to keep this ratio below 30%. Utilising a limited portion of your credit shows lenders you can manage credit responsibly and helps maintain a good credit score.

  • Avoid Frequent Applications for New Credit: Applying for multiple credit cards in a short period can negatively impact your credit score due to "hard inquiries" from credit bureaus. These inquiries remain on your credit report for a specific period and can temporarily lower your score. Avoid unnecessary applications and focus on managing your existing credit responsibly.

  • Monitor Your Credit Report Regularly: Regularly review your credit report for any errors or discrepancies. Identifying and addressing them promptly, such as reporting incorrect information or late payments that were made, can prevent inaccuracies from affecting your credit score negatively. You can access your credit report for free once a year from each credit bureau operating in India (CIBIL, Experian, Equifax, etc.).

Frequently Asked Questions

Can I apply for a credit card with a low CIBIL score?

While a CIBIL score is the most commonly used credit rating system in India, not having one doesn't entirely prevent you from getting a credit card. You can still explore options like secured credit cards and prepaid credit cards.

What are secured credit cards?

Secured credit cards require a security deposit (typically in the form of a fixed deposit) which serves as collateral for the credit limit. This allows you to build your credit history by using the card responsibly and making timely payments.

Can I get a credit card with a bad credit score?

Individuals with bad credit scores might have fewer options, but obtaining a credit card is still possible. Some banks offer unsecured credit cards specifically catering to subprime borrowers, but these often come with higher interest rates and annual fees.

What are the drawbacks of unsecured credit cards for bad credit?

These cards typically have significantly higher Annual Percentage Rates (APRs) compared to cards for individuals with good credit scores, making borrowing more expensive. They might also have annual fees and other charges, further increasing the overall cost.

Are there any alternatives to traditional credit cards for building credit?

Yes, becoming an authorised user of a friend or family member's credit card with good standing can help you build a credit history. Additionally, credit builder loans can be another option, allowing you to borrow a specific amount, make regular payments, and improve your credit score upon successful completion.

What factors do banks consider when issuing credit cards with low credit scores?

Banks might assess factors beyond your credit score, including your employment history, annual income, existing debts, and banking relationship with the institution.

What are some tips for managing a credit card with a bad CIBIL score?

You may prioritise making your payments on time to avoid late fees and negative impacts on your credit score. You can also ensure that you have a low credit utilisation ratio by utilising a small part of your current credit limit. Monitoring your credit report regularly for errors can help you address any issues promptly.

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