This post is towards Canadian readers. All of us want to improve our credit scores to borrow money at a lower interest rate when we buy a home, refinance the home or buy our cars. One way to improve the score is by having credit cards and using them well. But to have a credit card you need to have a good credit score. It’s a vicious cycle, how to get approved for a credit card with bad credit?
Each financial decision you make has an impact on your credit score. In general, your credit score is a reflection of how well or how poor you manage your finances. In recent times I applied for 3 different credit cards, total 4 in this year alone. I got approved for all of them. I apply for cards in a bunch of 3-4 every 6 months. This ensures I get sign-up rewards and bonus constantly, they are free money.
I have a credit score of 800+ in the USA, so it’s easier for me to be approved for a new credit card. It’s not always true for everyone. There are so many ways your credit can be ruined. A medical emergency, college fees, litigation fee, etc. can put you in financial trouble and your credit score suffers.
Information collected that reflects in your credit score includes how much debt you currently have, if you pay your bills on time, if you have previously filed for bankruptcy, had any loans foreclosed on, your personal information such as an address, and employment history.
This can be a comprehensive report which allows companies to take a peek at your ability to avail of certain financial products. In Canada, your credit score is extremely important in credit card applications.
If you have bad credit, you can easily get declined for most card applications. This is not only true for Canada but also for the whole world.
But it’s certainly never hopeless, and there is still a chance you can apply for a card if you know what and where to look.
There are two types of credit cards you can apply for if you have bad credit. Secured credit cards, and unsecured credit cards.
To simplify the definition, a secured credit card imposes on the applicant to place a deposit and in contrast, an unsecured credit card will not require a deposit prior to getting approved.
There are many different offers and offerings for these types of cards, so before you decide on the one you should do a little research first.
How to increase chances of approval
Go for the unsecured card first
For people with bad credit, it’s recommended to consider applying for an unsecured card first. However, applying for multiple unsecured ones offered is never a good idea. This will further lower your credit score and lessen chances of getting approved.
Another benefit of applying for an unsecured card is the easier application process, and you don’t have to pay a security deposit.
If this doesn’t work and you end up with a secured credit card instead, look for a card with low or no annual fee. Don’t get tied up with a secured card for a long period of time.
Do your best to raise your credit score enough so that you can qualify for an unsecured credit card with a better rewards plan.
Put your income accurately
All credit card application form requires this field to be filled up. Check all your sources of income and report as accurately as possible. Include your spousal income as well in the calculation, to increase the chance of getting accepted.
But at the same time, avoid the temptation of reporting higher income just to get approved as you’ll end up in trouble if the card issuer verifies your income and you’re asked to provide proofs.
If you have income outside of your full-time job, you can include it if you’ve put it in your tax return. More the income is higher the chance of getting approved for cards.
Pay bills on time
Once you get one unsecured or secured card, start paying your monthly bills on time. at the same time start raising your credit limit.
I’d recommend paying down the balance multiple time within a month so that you can reinforce your paying ower while negotiating for a higher credit limit.
One easy hassle-free way to pay your bills is by setting up auto-pay on your total credit card balance.
Give it time before applying for another card
Wait for at least one year before applying for more cards. It’ll take at least that amount of good payment history to have a significant impact on your credit score.
Check your score routinely and wait for it to go up before you apply for another card.
Once you’ve started rebuilding your credit, don’t fall down the ladder again. To help you pay your debts on time, apply for auto-debit payments.
If possible, pay in full so that you don’t get slapped with high-interest rates.
Getting bad credit is never the end of the line when it comes to financial matters. There is always a way to get back up and increase your chances of getting approved for financial products.
What your credit score says about you should never be permanent. It all boils down to your ability to discipline yourself and spend only that which you can afford.
You should also simplify your lifestyle as much as possible and don’t get too engrossed in trends. Try to be prudent with your finances now. With enough effort put into it, you can greatly improve your financial freedom in the future.