Credit cards for bad credit: how do they work?

Credit cards for bad credit: how do they work?

author: Bryony Pearce

By Bryony Pearce


Understanding credit cards for bad credit needn’t be complicated, so we’ve stripped back everything you need to know about how they work.

If you’ve got a less-than-perfect credit history and you’re on the hunt for a credit card for bad credit, the internet’s swimming with jargon and not-so-simple guides on what they are and how they work.

But don’t worry, this isn’t another one of them. We’ve filtered out all the complicated terms to bring you a simple and easy-to-understand article on how credit cards for bad credit actually work.

Let’s start from the beginning

Before we dive into how credit cards for bad credit operate, let’s take it back a step and look at why you might be in need of one...

If your credit history is seen as less than ideal by conventional credit card providers, they might turn your application down - mainly because they’re not confident they’ll get their money back, and there are a few factors that can lead to this, like:

  • You’ve missed credit payments in the past
  • You were late making a credit payment in the past
  • You don’t have any credit history to fall back on
  • Your finances are attached to someone with a bad credit history
  • You have a County Court Judgement (CCJ) against your name.

Identifying a bad credit history

One telltale sign that you’ve got a bad credit history is if your credit card application is declined.

However, there is a proactive way to see what state your credit history is in that you can - and should - use.

Experian, Equifax and CallCredit are all credit reference agencies, and through them, you can access your credit report - either free or for a fee. We’ll not go into too much detail on them, but you can find out more about each of the credit reference agencies, their systems and your credit report in this article on it here.

How credit cards for bad credit work

To the naked eye, credit cards for bad credit are no different to conventional credit cards. They’re plastic. They’re contactless. They have an account number, sort code and 16 digit card number. They come with Section 75 protection. And they can be used to spend just the same.

The difference in-lies with their eligibility, APR and credit limit.


Although some of the criteria will remain consistent with that of a conventional credit card - like being 18 or above and a UK resident, for example, other eligibility elements can be laxer.

Quite simply, this is because the lender in question knows you have marks on your credit history - it’s why you’re applying with them, so although those marks may factor into the interest rate and credit limit they offer you, they’re less likely to kibosh your application completely.


Because providers who specifically lend to people with less than perfect credit histories know they’re taking a greater risk, more often than not, the interest rate they offer you will be higher - because you’re statistically more likely to default on your payments.

The interest you pay will vary from lender-to-lender, but it could be anything between or around 25-45%. But remember, if you clear your balance in full each month, you won’t have to pay a penny.

Credit limit

Due to the fact that your track record of managing money isn’t perfect, the credit limit you receive on a credit card for bad credit will likely be much lower than the amounts on offer with conventional credit cards.

Rather than see it as a hindrance though, see it as a help. If you’re not exposed to large credit limits, you can’t be tempted to spend it, which means you can’t get yourself into uncontrollable debt. And from the other side of the table, it gives the lender assurance that you can’t spend large sums you can’t afford to repay.

How do credit cards for bad credit improve my credit history?

If you’re accepted for a credit card for bad credit, it gives you a shoe-in to start building or rebuilding your credit history. To do this though, it’s essential you stay within your credit limit and don’t default on any of your repayments. If you go against either of these golden rules, you risk damaging your credit history further.

What this means for you

By ticking the above two boxes, you’ll prove to your current lender that you can be a responsible borrower which, over time, could result in them raising your credit limit.

Not only that, but prospective lenders will be able to see that you can be a responsible borrower too, which will likely increase your odds of being accepted for other, more competitive lines of credit in the future.

Wondering whether bad credit will stop you from getting a loan? Find out here.

Disclaimer: All information and links are correct at the time of publishing.

author: Bryony Pearce

By Bryony Pearce

Credit cards for bad credit: how do they work? Credit cards for bad credit: how do they work?