Why Do You Have Bad Credit?

It doesn’t feel great when your credit score receives a knock – and unfortunately, it happens all too easily. Whether you missed a loan payment, you were late making a credit card repayment, or you applied for a number of credit cards at once and they all got rejected, your credit will feel the effects of these actions – and your credit score will suffer as a result.

No matter the reason however, once it’s done, it’s done. There’s nothing you can do to change what has happened, so you need to focus on making positive changes to improve your credit for the future.

Why Does Your Credit Matter?

When you apply for a credit card in New Zealand, the card provider has an obligation as a responsible lender to make sure you can afford to keep that credit card, and that having the card won’t be detrimental to your financial wellbeing.

Which is why, when you apply, the card provider will look both at your current financial situation – taking into account your employment status, income, assets and debts – and the information held within your credit record to determine your ability to deal with any new credit you are provided.

What does your credit record say about you?

Your credit record essentially outlines your payment history with credit, providing details of loans, credit cards and hire purchases in your name, as well as other important info regarding your employment and personal details. Your payment history for other bills such as electricity, gas and phone accounts may also be included.

If your credit record contains a number of missed payments, rejected applications – or more seriously, bankruptcies – that will indicate to any potential credit providers that either you are not responsible with credit, or you have more credit than you can comfortably afford to repay at the moment. Which will likely lead your application to be declined.

How To Get Approved With Bad Credit

So, can you get approved for a credit card with bad credit? It depends. If your credit is terrible, and you have been declared bankrupt, for example, then the answer is no, you will not get approved for a credit card right now. On the other hand, if you can prove you are making an effort to improve your credit – and your financial circumstances support it – you may be able to get approved.

Step 1. Check Your Credit

Before you apply, you need to know where you stand. Apply for a free copy of your credit record from each of the three credit reporting companies here in New Zealand (Centrix, illion and Equifax). Check each record carefully to see where you can make improvements. You should also apply to have any errors corrected.

Step 2. Get Smart With Your Repayments

Make sure you pay each of your credit card and loan repayments on time. Setting up a direct debit or automatic payment should help with this. Also make sure to pay all your other bills on time too, such as bills for your mobile and utilities.

Step 3. Pay Down Debt

When you apply for new credit, the credit provider wants to know you are not overcommitted elsewhere. Take time to pay down other debts now, so that when you apply for more credit in the future, the credit provider will see your ability to repay any funds provided to you.

Step 4. Start Saving

When you have fewer debts to cover, you can start to build up your savings. Your ability to save can go a long way with potential credit providers. Not only does it indicate financial responsibility, it also provides you with emergency funds to draw upon – which could be used to cover future credit card repayments, if needed.

Step 5. Retain Steady Employment

When you apply for a credit card, the card provider wants to make sure lending to you is low risk. With a steady job and income, you prove that are a low risk borrower, and will be able to make your repayments each and every month.

Choosing The Right Credit Card

While it may take time to improve your situation, your credit should steadily recover, to make it easier to get approved for credit in the future. When you’re ready to apply, it’s important you choose the right card – as this will also affect your chances of approval.

• Check income requirements. If you have a lower income, choose a card with low income requirements.
• Check eligibility requirements. Some cards require excellent credit for approval. These are typically higher end cards, such as platinum cards.
• Opt for a basic card. Basic cards with low fees and low rates are typically easier to get approved for. Always check the small print for eligibility info however, and contact the provider if you are unsure.