A credit card is the modern financial tool used by the majority of the youth of our country. In this, a person gets a credit limit, that much amount he/she can use without using his/her money and needs to get it paid off before the deadline which the card provider asks for.
What is CIBIL Score?
CIBIL stands for Credit Information Bureau Limited, is a credit information company that works on maintaining credit records for example payments and defaults of credit cards, loans, etc. of companies and individuals. The registered banks and financial institutions periodically submit the data related to the financial behavior of an individual and also of companies and CIBIL forms a Credit Information Report (CIR). It contains the whole history of borrowing & repayment and also includes defaults & delays in repayment of the credit. On the basis of this report, scores are decided and a person with a low score can avail credit cards for a low CIBIL score.
Calculation of CIBIL score depends upon following factors & weightage:
What is a bad credit score?
Many credit agencies evaluate a person’s behavior for the credit and provide credit score to them. Generally, a low credit score is considered below 600. Most lenders provide credit to a person who has a credit score above 750. A person with a low credit score would be a risky contender to provide credit and the chances of defaults are very high.
Types of credit cards for low CIBIL scores:
1. Secured Card: This is one of the types of low credit score credit cards, a person can avail this credit card against collateral like Fixed Deposit or by pledging an asset. This type of credit card gives benefits to the banks because they can recover whole credit if the person doesn’t payout the borrowed money. They generally give a credit line equal to the FD value. Paying out the borrowed money on time will help them to build their credit score and in future, he/she can avail traditional credit cards.
Some of the examples of such credit card for low CIBIL are
- Zero fee card
- Get 1 Reward Point per Rs 100 spent
- Minimum FD of Rs 25,000
ICICI Bank Instant Platinum Card:
- Zero joining and annual fee
- Internationally valid
- Minimum FD of Rs 10,000
2. Subprime Credit Card: This type of credit card is provided by the majority of banks specifically for subprime borrowers (credit cards for people with bad credit). This type of cards have high annual fees, application fees, high-interest rates on default and low credit is given for the borrowers due to their bad credit history and low CIBIL score.
3. Credit Card from your primary Bank: The person with a low credit score should first approach his/her primary bank because they have the whole financial history of a person and they know the financial worthiness of their customer. They can even provide credit cards for low CIBIL scores on the basis of bank account transactions.
4. Cards with alternative underwriting: Many lenders provide credit cards for people with bad credit to borrowers with no credit history, people having 0 credit score and with fair credit score ranging between 500 - 700. This is mostly the newer banks who want to create their customer base and to increase their business.
5. Co-Applicant with high Credit Score: A person with a low credit score can apply for the traditional credit card as a co-applicant with a person who has a high credit score. But if a person doesn’t pay money before the due date, it can lead to decrement in the credit score of a co-applicant with a higher credit score.
Disadvantages of using a credit card with a bad credit score
- Higher application fees and yearly charges
- Higher interest rates for late payments
- Low credit limit
- Less choices
- Less benefits of using credit cards for low CIBIL
It is necessary to get your credit scores better as soon as possible because you can’t use such low credit score credit cards for a longer period of time. So, it’s necessary to get traditional credit cards by having good credit score and to get rid of credit cards for low CIBIL scores. To improve your credit score with such cards, make sure you use the card frequently but do not exhaust credit limit. At the same time ensure, that you pay the complete (and not just the minimum payment) credit card bills regularly.
There are various types of low credit score credit cards which are available but have different types of disadvantages and strict rules for the person using them. Even if you have a bad credit score, start using a credit card for low CIBIL as mentioned above, and timely repaying the debt will lead you to be eligible for traditional credit cards and will be able to enjoy the benefits of it. A person can become rich if he/she uses credit card wisely and can also become poor by paying off high-interest rates on the borrowed money due to payment after the due date.
Frequently asked Questions (FAQs) for a credit card for bad credit
1. Does a credit check affect my credit score?
A credit check of your credit won’t affect the credit score. But if you have applied for new credit and there are a lot of inquiries about credit which shows that a person needs money can lead to a decrease of credit score by nearly 5 points. This type of inquiry from a lender is called a hard inquiry.
2. What happens if a person doesn’t pay a credit card bill?
If a person pays after the due date then he/she has to pay late fees and high interest rates on the borrowed amount also credit score gets affected. If a person doesn’t pay even after the due date then your credit card gets frozen and banks sell the debt to the collection agency who can sue the person for not paying the debt he/she had taken. In case there is no collateral available, the banks will write off the account and there would be a signficant change in the individual's CIBIL score.
3. How can I increase my credit card limit?
A. Use the credit card provided by the bank with the provided limit and timely repaying it. Bank will automatically increase the credit for the person after using it.
B. One can also show his/her income statement to prove the increase in income which also helps to increase the credit limit.
4. How can one check his/her CIBIL Score?
There are various websites where they ask you for personal details and provide you with the CIBIL score.
5. How to know why my CIBIL score is low?
One can refer to his/her CIBIL Information Report and find the reasons for the low CIBIL Score. A typical CIBIL score report will higlight what current borrowings are and how regular the individual has been in paying the credit amount back to the lender.