There’s an old saying that many practitioners of alternate medicine use when diagnosing their patients. It goes something like this:
“You are what you eat!”
The connotation is that, if you make healthy food choices, chances are that you will be healthy. There’s a similar connection between your credit score and your financial health. The question is: If you damage your credit, can you still get a credit card? Read on to find out.
Health and Healthy Credit
If you are healthy, a world of opportunities opens up to you. You can exercise without difficulty, enjoy the outdoors, and even climb a mountain or trek through a desert. But if you have, for instance, a broken leg – chances are that some (or all!) of those opportunities will not be available to you.
The same is true when it comes to your personal credit standing – which is invariably reflected in your credit score. With good credit, you’ll have a world of credit and financing opportunities open to you. However, bad or damaged credit can ruin it all. For instance, poor credit:
- Can spoil your chances of owning the home of your dreams, because you might not be eligible for the associated mortgage
- Could force you to reconsider taking that family vacation, because your bank won’t extend you the credit needed for the related expenses
- May cause your lenders (Banks, Insurance companies, Mortgage providers) to charge you a higher rate of interest on your loans, because you are considered a “higher risk” borrower!
In fact, damaged credit is akin to having a damaged heart valve. It makes taking in more credit, which is like oxygen for your financial well-being that much more difficult! However, damaged or bad credit doesn’t necessarily put access to a credit card out of your reach.
Credit Cards And Damaged Credit Repair
It takes years to build credit, but it can take just a single financial transgression to damage it! Recovering from bad or damaged credit often requires you to demonstrate responsible credit management over a period of several years. And one important tool to help you repair damaged credit is a credit card.
If you are one of the many unfortunate Canadians with damaged, bad or poor credit, and have been forced to make significant financial life-altering decisions due to lack of a credit card, then there’s good news! Despite having less than stellar credit, you CAN get a credit card – but it may come with some “conditions”:
- Firstly, you might not qualify for a top-of-the-line rewards or points credit card
- Secondly, most credit card issuers will review your credit score first, and if its less than a certain threshold, they may charge you a higher APR on your credit balance than you would qualify for if you had a better credit score
- Thirdly, it is highly unlikely that you will receive a no-fee credit card. Individuals with damaged credit are usually offered cards with an annual fee attached to it
- You may only be offered a “secured” credit card, wherein you are asked to make a deposit with the issuer before they provide you with a card. Should you be unable to make a payment against your credit transaction, that security deposit will be used to clear your balance
- The cards you might be eligible for might have much lower credit lines than those offered to individuals with better credit
And then there’s the need to compromise on what types of cards you would likely have to settle for – at least until you’ve restored your damaged credit substantially.
You may be eligible to receive “Guaranteed” credit cards from some issuers. These cards are targeted specifically to individuals with damaged or poor credit, but often come with just the bare minimum of benefits and protections. The benefit of these cards is that you are almost certain to be granted one because, more likely than not, you won’t be subjected to a credit check.
Store Credit Cards are yet another option to turn to if your damaged credit shuts you out from receiving cards from major banks or financial institutions. In addition to helping you repair damaged credit, these cards offer cardholders other benefits, such as store-specific discounts, access to partner retailer promos, and other discounts and savings opportunities. Store Credit cards may however come with higher APR and fees than standard or secured cards.
Some consumers with damaged or bad credit may be tempted to use Prepaid Credit Cards to get around their credit-worthiness challenges. However, keep in mind that transactions against such cards are NOT reported to credit reporting agencies like Equifax Canada or TransUnion. As a result, even though you manage your finances responsibly using such cards, it is unlikely to have any credit restorative impact. From a damaged credit repair perspective, you might as well use cash instead of your Prepaid Credit Card!
Damage Control 101
Now that you know you CAN still receive a credit card, even with damaged credit, you might be tempted to go out and apply for one and start using it like you did before you damaged your credit. That would be a huge mistake! Instead:
- Think of your new credit card as a damage control tool, and use it wisely
- Every time you swipe, tap or type in your credit card number online, make sure you understand that’s one more opportunity for you to repair your damaged credit
- Do everything you can to ensure you pay your credit card bill on time
- Remember: Credit Cards issued to individuals with damaged credit come with higher interest rates and fees. So, pay more than the minimum balance each period, if possible, so that you don’t get hit with excessive interest charges.
If you are in doubt whether a particular monthly payment strategy will save you money, you can use an online Credit Card Calculator to confirm how much you could save in interest, and how long it may take to repay that balance. That information will help you develop your credit damage control strategy.
The more you use your credit card responsibly, the quicker you’ll be able to repair your damaged credit, and the faster you’ll be eligible for “regular” credit cards. While damage-repair credit cards (like the ones discussed in the prior section) do allow you access to credit facilities, their main benefit for you is as a damage control tool.
