More than half of us are at risk of being denied credit from mainstream lenders.
That’s according to the Mind the Credit Gap report from Aqua, which coincidentally offers credit cards to those with a less-than-spotless credit record.
Once you get past the cynicism though, the report raises an important issue: there are many potential borrowers who mainstream lenders want nothing to do with. Just what are their options?
Whether more than half of us really are at risk of getting a rejection letter, I’m not so sure; only 2,000 people were surveyed after all. But I’m not in any doubt that the number of people locked out of mainstream borrowing is rising.
Why we are at risk of being declined
There are many reasons why borrowers could be declined. But these are the top five according to Aqua’s study.
- Have not completed a payment agreement: 72%
- Are not homeowners: 39%
- Have opened two+ credit accounts in last six months: 30%
- Have made four+ credit applications in last 12 months: 24%
- Are younger than 25: 14%
So if the mainstream lenders don’t want to touch you, what are your options? Thankfully there are a number of cards specifically designed to cater to borrowers with poor credit records, or even no credit record at all.
Use them wisely and they are not only a source of credit but a way to build or rebuild that credit score.
Let’s start with the Barclaycard Initial Visa, a credit card that not only can most borrowers get, but one that also offers an interest-free period on purchases.
What’s more that 0% period has just been increased from three months to five months. That means that if you have to make a significant purchase, you can pay it off in stages without having to shell out on interest (particularly as the interest rate is 29.9%).
And I don’t think the 0% period will convince borrowers to go a bit mad with their spending; after all the card boasts small credit limits of between £250 and £1,000.
Barclaycard isn’t the only provider to offer interest-free purchases – the Luma card comes with 0% on spending for three months. You get a credit limit of up to £1,500, but you don’t want to pay less than the full balance once you do start being charged interest, as it’s a punishing 35.9%.
Aqua Reward MasterCard
There’s no interest-free period with the Aqua Reward card, but you do benefit from 3% cashback on your spending, capped at £100 a year.
You start with an initial credit limit of £250-£1,600, and you’ll need to pay off the balance in full each month to avoid getting whacked with interest at 34.9%!
Aqua Advance MasterCard
Another innovative card, the Aqua Advance offers you the chance to cut the rate of interest you pay, so long as you pay at least the minimum payment each month and keep within your credit limit.
You start with an APR of 34.9%, but use the card properly and the rate will be cut by 5% each year for three years. Again you’ll have a credit limit of £250-£1,600 and an interest rate of 34.9%.
Vanquis Bank Aquis Visa
With the Aquis you start with a credit limit of at most £1,000. However, you can get an increase on your fourth statement, and then every four months thereafter up to a maximum of £3,000, so long as you pay on time, don’t go over your limit and don’t take on too much debt elsewhere.
The APR is 29.8%.
Capital One Classic Visa
The Capital One Classic is specifically for borrowers looking to rebuild their credit rating rather than those that are new to borrowing.
Borrowers get a credit limit of between £200 and £1,500 and an APR of 34.9%.
There’s also the Capital One Classic Extra which offers 0.5% cashback on all of your purchases and a £10 annual bonus for paying on time each month.
This is a card that will punish you if you don’t manage to pay the full balance each month, as the Black Diamond has an almighty APR of 59.9%!
You’ll start with an initial credit limit of £150-£1,000.
Improving your credit record
Managing one of these cards properly is not the only way to give your credit rating a boost. You can also follow the tips in How to build an excellent credit history.