A credit score is the outcome of a mathematical algorithm applied to a credit report as well as other sources of information related to finance to predict future ability to pay debts. Scores range between 300- 850, whereby 300 is very poor, and 850 is excellent. Most banks want to know how you have been doing financially in previous years to give you a credit. However, some financial institutions offer bad credit credit cards guaranteed approval no matter what your score is.
Bad credit refers to credit score, also FICO score of between 300-579. At this point, the banks and other financial institutions term you as having a likelihood to become delinquent. In fact, according to Experian, 62% of people with poor credit scores are likely to face financial challenges in repaying their debts on time. Most are likely to go past 90 days of the due date in the future. However, with proper financial counselling and willingness to improve, you can enhance your performance on debt payments.
Credit bureaus usually depend on your credit history to come up with a credit report as well as your score. Remember that banks must report their customers’ financial records to the credit agencies. Credit history is a record of debt repayment to different financial institutions. If you do not have any credit history, it means you have not used financial institution services. Banks will, therefore, be unable to predict your behavior in the future. However, there are ways on how to get first-time personal loans with no credit history.
How Is a Credit Score Calculated
Several factors contribute to your final credit score. Each of them contributes to a certain percentage. All the major credit bureaus use the FICO scoring system to come up with a credit score. The following factors are essential during calculations.
1) Payment history
How have you been paying loans and other debts? Adverse events, such as entering into collections, late payments, foreclosures, bankruptcies, and judgments, among others, contribute to low credit score. The worse an event is, the more it affects your score negatively. Ironically, newer unpaid debts are worse than old outstanding debts. Your payment history contributes to 35% of your entire credit score.
Debts contribute to 30% of the credit score. Which debts do you have? There are various types of debts that the FICO score considers during the entire computation of your score. One can have an installment debt whereby you pay specific amounts of money periodically until you settle your loan. Personal loans from a credit union are good examples of installment debt.
You can also have a revolving debt. It involves credit card utilization as well as retail shop cards, among others. Credit cards allow you to borrow money from your financial institutions and pay back later with interest, mostly each month. Credit cards take the name revolving debt because you repay and borrow again continuously.
Here, the credit bureaus take the aggregate credit balances, then divide them by the total credit limits, then multiply the result by 100 to get the percentage. The higher the percentage, the lower your score and vice versa.
Another kind of debt is the open debt, whereby you have to pay the debt each month and in full. Charge cards are examples of open debts. A good example is the American Express Green card.
3) Credit File Age
How old is your credit report? If you began utilizing credit services a long time ago, then your credit report is old. Lenders consider old credit reports as being stable. The age of a credit report contributes 15 % to the FICO score. Old credit increases trust by lending companies. It is easy to get first time home loans with zero down if you have an old and good credit report.
4) Account Diversity
Account Diversity contributes 10% of your entire credit score. The diversity here means that you have different types of credit accounts such as revolving, installment and open debts. Having diverse credit accounts shows that you can manage various account types.
5) Credit inquiries
How often are you looking for new credits? If you are frequently looking for other credit lines, then this also goes into your final credit report. Credit inquiries contribute to 10% of the overall FICO score.
However, not all credit inquiries contribute to your score. Some inquiries, such as employment screening inquiries, utility-related inquiries, and insurance-related inquiries, among others do not affect your score in any way.
Inquiries by lenders wishing to give you a loan can affect your credit score. However, for first-time applicants of loans such as student loans, lenders may require guarantors with good credit scores. If you wish to apply for personal loans for students with no income you can bring your parents or relatives with an acceptable credit score.
Summing the above percentages, you get 100%. It is crucial to know which factors contribute to your credit score and focus on them to ensure that things go well. However, if you find yourself on the wrong side, there is hope as you can regain your score gradually. Moreover, you can still get bad credit long term loans guaranteed approval irrespective of how bad your score is.
Which Are The 9 Best Guaranteed Approval Credit Cards for Bad Credit?
According to my research, the following are the nine best credit cards you can get if you have a bad credit score.
1. Indigo Platinum Mastercard
If you have a credit score of 300-670, then this card is suitable for you. Although it does not offer cash back or points, the card is worth utilizing since it’s regular APR is 24.90% fixed. The annual fee ranges between $0-$99. The card usage is friendly since you can access it using a mobile application. The card is usable at over 35 million locations in the world. Learn more.
2. Credit One Bank Visa Credit Card
The card can allow people with credit scores between 300-670 to apply. Upon getting the card, you enjoy various benefits such as 1% cashback on all eligible purchases such as mobile services, gas, and groceries. The annual fee ranges from $0-$99. The regular APR is variable and ranges between 19.49% – 25.49%. Learn more.
3. Discover it Secured
The card does not consider credit histories. Anyone can apply irrespective of his or her credit score. The card offers 2% cash back at gas stations as well as at restaurants on up to $1,000 total purchases each quarter. Any other purchase attracts a 1% cashback. The annual fee is zero, while the regular APR is 22.99% variable. The Balance Transfer Intro APR is 10.99% for six months. Learn more.
4. Surge Mastercard Credit Card
Surge Mastercard Credit Card accepts any credit type. Unfortunately, the card does not give cash back or points. It gives you an initial credit limit of $500. It gives you an excellent opportunity to improve your score since it reports to the three major credit bureaus every month. Applications are faster on their website. You require a checking account to use with this card. Learn more.
5. Milestone Gold Mastercard
With a credit score of 300-670, you can get this card. Its annual fee ranges from $35-$99. Unfortunately, the card does not give cash back, miles, or points whatsoever. Its regular APR is 24.90% fixed. Apart from being able to choose your design for this card, you will be able to manage it online using your smartphone. Learn more.
6. First Access Visa Credit Card
The Bank of Missouri issues the card. It accepts any credit history between 300-670. However, you will not enjoy any cashback, miles or points. Upon approval, you can access a credit limit of $300. Moreover, you will be able to improve your credit records gradually since the company reports to the main credit bureaus every month. You can select your card design for free. Learn more.
7. OpenSky Secured Visa Credit Card
You do not need any credit history to apply for the card. People of all credit types are free to apply. However, the card does not offer any cash back, miles or points. The annual fee is $35, while the regular APR is 18.89% variable. The company guarantees you that you will earn a considerable credit score within the first six months. Moreover, the company provides an interactive platform on Facebook for customers to share their experiences. Learn more.
8. Official NASCAR Credit Card from Credit One Bank
The card recommends people with credit scores of between 300-600 to apply. Moreover, customers get 2% double cash back rewards at any NASCAR Shop. Again, you get 1% cash back on eligible gas and automobile purchases. Still, the card attracts an annual fee of between $0 – $99. The regular APR for this card is 19.49% – 25.49% variable. Interestingly, the company reviews customers’ accounts for a credit increase. Learn more.
9. Self – Credit Builder Account + Secured Visa Credit Card
The card does not require any credit history at all. Poor or excellent credit scores are valid. Unfortunately, the card does not offer cash back, miles or points. The annual fee is a one time $9 + secured card fee of $25 per month. The application is fast and online. There is a 0% regular APR. With this card, you will be able to prove your credit score since the company reports to the major credit bureaus every month. Learn more.
Credit cards for bad credits are useful as they can help you financially as well as assisting you in improving your credit score. Although the credit limit might be low, there are other benefits like cash backs and points given by some credit companies. If you get an opportunity to have a card, utilize it wisely so that you can improve your credit score. The trick is repaying on time.