Poor financial moves, such as not paying a bill or missing payment deadlines, can leave black marks on your credit score, which can make it harder to borrow money, or to get approved for a utilities account or a credit card.
However, while a black mark on your credit history does make it harder to gain approval for credit, it doesn't make it impossible.
And there are steps you can take to improve your chances of getting approved for a credit card.
What is a credit report?
A credit history report summarises your financial history, covering your repayments across products such as credit cards, mortgages and car finance and hire purchase contracts.
A report can also include information about utility payments, such as electricity, gas and phone accounts.
Credit reports usually cover two years of your financial history. However, records of payment defaults overdue by more than 30 days, or if a lender took action to recover a payment, can stay on your credit report up to five years.
How to get approved for a credit card with bad credit:
Here are four steps to take to improve your chance of getting approved:
1. Fix your credit report
To figure out how to improve your credit rating, you need to first look at your report. You can't improve your credit rating until you know what black marks you need to fix. And, you never know what it might uncover.
Your bad credit rating might be down to something as minor as a phone bill that you forgot to pay, or even an administrative error.
It's easier to fix your credit report now than to apply for a credit card and be rejected, because a rejection will add another black mark on your report.
Three credit rating companies in New Zealand let you access a free credit history report. And it's a pretty quick and easy process to apply online:
2. Assess your employment situation
A lending institution is not legally allowed to give you a credit card unless you have enough annual income to meet the minimum repayments for the card's credit limit. If you can't afford to repay your balance in full each month, you may be better off using a debit card than getting into debt.
If you don't already have a regular job or reliable source of income, major banks and other credit lending institutions are likely to reject your card application. This creates another black mark on your credit score, so hold fire on applying for a credit card until you have secured stable employment.
What counts as stable employment? If you're employed as a casual or contractor, you may need to demonstrate a long-standing working relationship (of more than 12 months) with your current employer.
If you have had multiple employers in a short span of time, that usually won't help your case if you're applying for a credit card and have a poor financial history. Most lenders are looking for you to have had one or two stable sources of income, rather than several smaller jobs.
3. Pay off other loans or credit
Lenders usually approve credit cards, or other types of loans, based on your repayment history of previous loans. When applying for a credit card, you'll need to demonstrate a consistent history of meeting required repayments over past months. In the case of other credit cards, you'll have to show that you've been making more than the minimum monthly repayments.
4. Start saving
When you apply for a credit card with bad credit, lenders look at your current bank statements. If you've overdrawn your account recently, or if any direct debits have been dishonoured because there wasn't enough in your account at the time, these things do not look good to lenders.
It's essential to prove that you're not spending all of your income on your expenses and other debts, and that you are saving a small amount each week. This says to the lender that you have the finances to repay a credit card if they give it to you.
I keep getting rejected for a credit card – why?
If you keep applying for credit cards knowing you have a bad credit rating, banks and credit institutions will keep rejecting your application. Lending institutions have criteria that they have to follow by law – and they can't give you a credit card unless you meet those criteria.
If you still feel a credit card is the best finance option for you, make sure you check out what cards are on the market, so you apply for a card that best suits your needs, for example a low-rate or low-fee card, or one that offers a good balance transfer deal that could allow you to pay down any existing credit-card debt.
