Credit reporting is a way by which lending institutions share information about different individuals. This helps in avoiding any chance of non-payment of the loan as it has a complete payment history of an individual.
Several tools help in evaluating the credit of an individual. FICO score or Fair Isaac Corporation score tool is a primary tool used by all the institutions. Your first step to buy a home is to find out your FICO score. The FICO scores vary depending on geographical locations. You must also check the national average credit scores of each state.
Bad credit refers to the low credit score against your credit card. The credit score is the numerical aggregate of all transactions made against your credit report.
The most common credit score used globally is the Fair Isaac Corporation or FICO score. It is calculated based on payment history, credit history, market debt, new credit and credit mix. FICO score affects the interest charged against your loan and whether the loan will be approved or declined.
The FICO score has five ranges:
• Poor: Below 580
• Fair: 580-669
• Good: 670-739
• Very good: 740-799
• Exceptional: 800 above
Hence, low or bad credit is FICO credit score below 580.
Five different factors contribute a particular weightage each to the final credit score. It is essential to use a credit card to build up credit over time.
• Payment history: Poor payment history will result in the maximum decrease of your credit score. It makes up around 35% of your score.
• Amounts owed: Debts and unpaid bills are frowned upon by credit card issuing authorities. If you are behind payments, there is no guarantee that you will clear the credit loan, making you a liability. This makes up around 30% of your score.
• Length of credit history: Longer the credit history, the riskier it is to loan money. Short payment history indicates a safe candidate for the loan. This aspect takes up around 15% of your score.
• Credit mix: Having multiple credits like a credit card, a rental history, a car loan, and a retail card enhances your credit score. A healthy mix can affect your score by up to 10%.
• New credit: Every time you open a new account, your credit score is going to take a hit. The hit is temporary but any hard credit checks are going to dent your credit score for a while. This can make up as much as 10% of your overall score.
While a higher score gives you rewards, travel points and cash back, a low score credit card might qualify you for a secured or unsecured credit card.
Secured credit cards require an initial deposit. It is applicable for the ones with an extremely low credit score. It is like a prepaid credit card where a certain amount of money is loaded every month to be spent at places where secured cards are accepted.
Unsecured credit cards are the most common tax credit cards. They usually have a credit limit of $300 per month, which gradually increases with regular usage over time.
Unfortunately, if you have low credit, then the credit cards with the most appealing prospects are out of your reach. Unsecured cards can help you build your credit up to a safer position. Some of the best-unsecured credit cards for people with bad credit are:
• Credit One Bank Unsecured Visa – It is considered the best unsecured credit card in overall usage. It offers rewards and cashback while increasing your credit after making on-time payments for five months. It has an annual fee of $0 to $75 for the first year, followed by $0 to $99 every year. It enables you with a score tracking service to track your monthly credit score progress. It provides a credit limit of $300 for people with a low score and an APR range of 15.65% to 24.15%.
• Indigo Platinum Mastercard – Gaining popularity in recent times, these cards are available to people having a range of credit card scores. This card also offers a $300 limit and $0 to $99 annual fee with an APR fixed at 23.9%.
• Milestone Gold Mastercard – Having a credit limit of $300 with the annual few between $35 to $99, the APR is fixed at 23.9%
• Total Visa Unsecured Card – This has the highest APR of 29.99%, with a credit limit of $300. It has an annual fee of $75 for the first and $48 for the following years.
• Platinum One Credit Card – This card is available for people with a credit score of higher than 600, having no annual fee and an APR of 24.99%. It also has fraud coverage along with a credit limit between $200 and $500.
Now, before you do get a credit card loan, remember that you may have to worry about having to go through the hassle of repaying it.
You can apply for a credit card online very easily. Read the application details on the company website thoroughly. Enter the pre-qualification process details like your personal information, salary details and social security numbers. After the pre-qualification process is complete, the full application process starts.
During this time, the credit card company performs full background checks on your credit score.
Once the application is approved, the credit card will be sent to your address within two weeks. In case the credit score is too low, the application gets rejected, and the applicant is declared ineligible for any cards.
Before choosing your loan, you can always choose a schedule of repayment that is flexible for you. That way, you pay according to your schedule, and can easily pay off bad credit loans directly from your account.