Credit cards have significantly changed the way financial transactions take place over the past two decades. People use this so-called ‘plastic money’ for making various kinds of purchases. These were introduced back in the 1950s and have since gained popularity across the globe.
Today, credit cards are an important means of payment that are used by most retail customers. These are primarily small loans which individuals can avail by swiping their card. Customers can pay for their purchases by using a credit card and the total amount spent will then have to be repaid as per the pre-decided billing cycle. Additionally, credit cards offer multiple other benefits, such as rewards points, air miles, discounts, coupons, etc every time customers make payments using their credit card.
Eligibility for Credit Cards
While credit cards may offer numerous advantages, not every individual can easily avail credit cards unless they qualify for the eligibility criteria. Most credit card providers have certain eligibility criteria in place which must be fulfilled by applicants. Here are the commonly used criteria:
Age – Individuals above 18 of age can apply for credit cards unless specified by the issuing bank or financial institution. Another alternative is going for an add-on or supplementary credit card for those who are yet to attain 18 years of age.
Income – The income of an applicant is one of the most crucial factors which is considered by credit card issuers. Individuals have to show proof of affordability of the credit card and ability to pay the required bills on time.
Location – Some credit cards have benefits and perks which are applicable only in certain locations such as urban areas or Tier-I cities. Thus, the location of individual matters while applying for a credit card.
Credit Score – Apart from an individual’s income, it is important to have a good credit score. Individuals who have a good credit score can avail credit cards easily. Credit scores are one of the most important deciding factors that determine credit card eligibility.
Understanding Credit Score
Before applying for a credit card, applicants must first understand the concept of a credit score. With the introduction of credit reports and credit scores, an individual’s creditworthiness can be easily estimated by banks and other credit card issuers. A credit report offers details of an individual’s credit behaviour and history which essentially highlights how the individual has been using the available credit, loans, pattern of repayments, etc.
A credit score is a numeric representation of an individual’s credit capacity. Several credit agencies offer credit reports and credit scores on individuals, which are used by banks and financial institutions for assessing the creditworthiness of credit card applicants.
What is a good credit score?
A credit score comes in the form of a three-digit number in an individual’s credit report. This number can range from 300 to 900. Generally, scores that are above 700 are considered to be good.
Lenders and banks use a credit score for assessing the potential risk involved in providing credit to applicants, especially in terms of their repayment capability. Additionally, it helps in evaluating the capability of applicants to bring in more revenue for the credit card issuers. Those who pose the least risk get loans and credit cards easily and these are individuals who have a high credit score.
There are various advantages of having a good credit score. Individuals who have scores above 700 can easily avail a credit card as long as all the other eligibility criteria are met. Additionally, such individuals can even enjoy loans at low interest rates and a good bargain too. A good credit score indicates that an individual can repay loans and credit card bills. Therefore, such individuals are given preference over others who do not have good credit scores.
Strategies to Get a Credit Card with Bad Credit Score
Sometimes, individuals who have a bad credit score can also avail credit cards. While it could be tough for such applicants to get the desired credit card, some cards can still be procured despite a poor credit score.
The ideal option for an individual with bad credit is to apply for a secured credit card. This can be procured by providing collateral such as a fixed deposit. If the individual has a fixed deposit of say Rs. 30,000, the credit limit of the card is set at the same amount or 80% to 90% of the fixed deposit amount. Individuals can also opt for instant credit card approval. Secured credit cards can be used to rebuild credit scores and procure other credit cards in the future.
Other advantages of secured credit cards are reward points, fuel surcharge waiver, associated perks, etc. Certain banks offer secured credit cards like the Coral credit card from ICICI Bank, Insta Easy Credit Card from Axis Bank and the SBI Advantage Plus credit card.
While a poor credit score can never benefit an individual, they can still avail secured credit cards and rebuild their credit along with improving their credit score.
Responsible Usage of Credit Cards
Despite all the benefits offered by credit cards, it is important to use them judiciously since misuse of these cards may result in a debt trap for the cardholder. It is advisable to pay credit card bills on time and in full so that dues do not pile up over time. In case the entire dues on credit cards are not paid in the billing cycle, there could be heavy interest fees as well.
Another alternative that customers can use is to pay minimum balance and carry over the credit card bill to the next cycle. However, this should be used only when needed since interest can start accumulating and lead to a debt trap for the cardholder.
Tips to Improve a Bad Credit Score
A lot of times, individual borrowers are unable to maintain a good credit score. Here are some of the reasons behind this:
- Pay credit card bills on time – Credit history is the main driver of credit score. Thus, making delayed bill payments can harm an individual’s credit score.
- Avoid Payment Defaults – Defaulting on bill payments is another primary reason for a poor credit score. So, ensure that you pay your loan EMIs and credit card bills on time and avoid defaults to build a good credit score and history.
It is possible to get a credit card despite the bad credit. One can apply for secured credit cards and start focusing on rebuilding credit history. This can help in the long run as issuers can observe a constant focus on rebuilding credit score instead of continued bad credit behaviour on part of the individual.