Credit cards are handy for expenses, credit building, and perks, but maintaining a good score is vital. Knowing the minimum CIBIL score, reasons for poor credit, acquiring cards with low scores, and their types is crucial amid these benefits and potential credit pitfalls.

Bad credit is a reflection of poor credit history, often characterised by late payments, defaults, high credit utilisation, or even bankruptcy. Your credit score, a numerical representation of your creditworthiness, takes a hit when these negative events occur.

A lower credit score indicates a higher risk for lenders, making it challenging to qualify for traditional financial products.

A Credit Information Bureau (India) Limited [CIBIL] score is a numerical representation of your credit history and repayment behaviour. It ranges from 300 to 900, with higher scores indicating better creditworthiness.

Different credit card issuers may have different minimum CIBIL score requirements, but generally, a score of 750 or above is considered good.

A score below 750 may reduce the chances of getting a credit card or result in higher interest rates and fees. Therefore, you must check your CIBIL score before applying.

Various factors affect your credit score and cause bad credit, and some of them include:

• Missed or Late Payments: Your payment history is the most important factor in your credit score, accounting for 35%. If you miss your payments or delay paying your bills or loans, it will negatively affect your credit score.
• High Credit Utilisation: Your credit utilisation is the ratio of your outstanding balances to your available credit limits, accounting for 30% of your credit score. Using too much of your credit will lower your score.
• Too Many Credit Inquiries: Every time you apply for a new credit card or loan, the lender will perform a hard inquiry on your credit report. If you apply for too many credit products within a short period of time, it will hurt your score.
• Defaulting on Loans: Defaulting on a loan means you fail to repay the money you borrowed, either partially or fully. This will severely damage your credit score and stay on your credit report for up to seven years.
• Bankruptcy or Insolvency: Bankruptcy or insolvency is a legal process that allows you to eliminate or restructure your debts when you are unable to pay them. However, this will also have a devastating impact on your credit score.

There are two main types of credit cards you can get with a poor credit score: secured and unsecured.

Secured Credit Cards

Secured credit cards require you to deposit a certain amount of money as collateral, which becomes your credit limit; some examples of secured credit cards are:

• SBI Advantage Plus Credit Card: The SBI Advantage Plus credit card is offered against fixed deposits and has an annual fee of ₹ 500.
• Axis Bank Insta Easy Credit Card: Axis Bank Insta Easy credit card can be availed on your salary or fixed deposit and has no joining or annual fee.
• Kotak Mahindra Aqua Gold Credit Card: Kotak Mahindra Aqua Gold credit card is also based on fixed deposits and offers interest-free cash for up to 48 days.

Unsecured Credit Cards

Unsecured credit cards do not require a deposit but may have higher fees and interest rates. Some examples of unsecured credit cards are:

• Petal 1 “No Annual Fee” Visa Credit Card: This card has no annual or foreign transaction fee and offers cash-back rewards.
• Capital One Quicksilver Secured Cash Rewards Credit Card: It has a refundable security deposit, low annual fees, and offers 1.5% cash back on every purchase.
• Discover it Secured Credit Card: This card has zero annual and foreign transaction fees. It offers 2% cash back at gas stations and restaurants and 1% on purchases.

Getting a credit card with a low credit score in India requires a strategy and following the below eight steps:

• Step 1: Check Your Credit Score: Get your credit report from top bureaus like CIBIL, Experian, or Equifax. Study it to understand why your score is low.
• Step 2: Explore Secured Credit Cards: Apply for secured cards made for low-score individuals. They need a deposit, and the limit matches the deposit.
• Step 3: Research Credit Cards for Low Credit Scores: Look for credit cards tailored to low scores, with relaxed eligibility criteria for better approval chances.
• Step 4: Apply for Basic Credit Cards: Opt for basic credit cards in India for a limited credit history, which may have lower limits and fewer features.
• Step 5:  Add Co-Signers or Joint Applicants: Apply with a co-signer for added approval chances, sharing responsibility and benefitting from their positive credit history.
• Step 6:  Demonstrate Stable Income: Showcase a stable income to boost approval prospects, highlighting a reliable and consistent income source.
• Step 7: Clear Outstanding Debts: Settle outstanding debts within a specified time frame to positively impact your creditworthiness.
• Step 8: Rectify Errors on Your Credit Report: Scrutinise your credit report for errors. Dispute inaccuracies with the credit bureau for a more accurate credit profile.

Getting a credit card with bad credit can have some advantages and disadvantages, depending on how you use it.

Pros

The different advantages of getting a credit card with a bad credit score are mentioned below:

• Credit Rebuilding Opportunity: Applying for a credit card with bad credit allows you to showcase responsible financial behaviour. Timely payments and responsible credit use can positively impact your credit score over time.
• Access to Credit: Despite having bad credit, you can still access credit through specific credit cards designed for individuals with lower credit scores. This allows you to make necessary purchases and cover expenses.
• Emergency Fund: Having a credit card, even with bad credit, can serve as a financial safety for unexpected expenses. It provides a financial cushion when needed, especially in situations where immediate cash is required.
• Establishing Financial Discipline: Managing a credit card with bad credit demands discipline. By paying bills on time, controlling spending, and staying within the credit limit, you develop responsible financial habits crucial for long-term stability.
• Introductory Offers and Rewards: Some credit cards for bad credit may come with introductory offers or rewards programs. These perks can include cashback, discounts, or points for specific purchases.

Cons

Although getting a credit card with a bad credit score is advantageous, it has a few cons, too, such as:

• Higher Interest Rates: Credit cards for bad credit often come with higher interest rates compared to cards for individuals with good credit. This can result in significant interest charges if the balance is not paid in full each month.
• Annual Fees and Additional Charges: Many credit cards for bad credit scores may have annual fees and additional charges. These fees can add up, impacting the overall cost of using the credit card.
• Lower Credit Limits: Credit cards for bad credit scores typically have lower credit limits. This may restrict you and your purchasing power make it challenging to cover larger expenses, and can lead to financial burden.
• Impact on Future Credit Applications: Applying for credit cards with bad credit might result in hard inquiries on your credit report. Multiple inquiries within a short period can negatively impact your credit score and future credit applications.
• Risk of Debt Accumulation: Without careful budgeting and financial discipline, there's a risk of accumulating debt with high interest rates. Carrying a balance from month to month can lead to financial challenges.

While a bad credit score may present obstacles, obtaining a credit card is not entirely off the table. Individuals can embark on a journey towards credit recovery by understanding the nuances of bad credit, exploring suitable card options, and adopting responsible financial habits.