Credit cards have become an essential part of most people's lives. It is hard to book a holiday, buy goods over the internet, or tickets to the theatre and sporting events without one. They also can offer you extra protection when things go wrong if you have spent more than £100 in a transaction. But if you have been in financial trouble at some stage during your life, it's possible you'll have a poor credit rating which might mean you have already suffered the ignominy of being turned down for a credit card. Redundancy, divorce and ill health are often significant contributing factors to financial distress, which can lead to late payments, mortgage arrears, defaults, County Court Judgments (CCJs) and in severe cases, IVA or bankruptcy.
One in four of the adult population in the UK has some form of poor credit history. So how can they go about repairing their credit history? Many find themselves in a chicken and egg situation. They have sorted out their finances but still can't get a credit card because of their poor financial record in the past. But because they can't get a credit card they cannot build up any new "clean" credit history.
Fortunately there are some credit card issuers that offer you a chance to rebuild your credit rating whilst enjoying the convenience of using a credit card. Capital One, Aqua and Vanquis invite applications from people with a bad credit rating or individuals who have been refused elsewhere.
When you apply for a credit card, the credit card company will carry out a credit check (known as credit scoring) on you to decide whether to accept your application and will then consider how much to lend you (your credit limit).
Credit scoring is a system that can help lenders decide whether to lend to you. They may use it to help them assess your ability to pay back what you borrow and to set your credit limit. They will use all the information available to them. This will include the information you provide on your application form, any information from other products you may already hold with them and information provided by credit reference agencies.
Each credit card company has its own scoring system, but generally you’ll score more points if you have a good credit history by paying back other borrowing on time. Other borrowing can count against you though if it suggests you may have difficulty paying back new borrowing. If you’re not on the Electoral Register (voters’ list), the credit card company may refuse your application. This is because credit card companies use it to confirm your name and address. Credit card companies won’t go into detail about how their scoring systems work, but if you are refused credit, they must tell you the main reason if you ask. They must tell you the name of any credit reference agencies they used if you ask within 28 days of being turned down.
People who have experienced bad credit history are likely to have a relatively low credit score when compared to those who have an impeccable borrowing history. The choice of credit cards open to people with a poor credit score is limited. As a person's credit rating deteriorates, so will the number of rejected applications, and the competitiveness of the deals available - rates of interest are relatively high and the credit limit offered is usually lower than standard deals.