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What is a credit builder card?
A credit builder card is a type of card that aims to help people build and improve their credit score.
It’s specifically designed for those with bad credit histories or those who may have a very limited credit history, as they may struggle to get approved for a standard credit card.
Because providers view these individuals as a higher risk, credit builder cards will often have higher interest rates and lower credit limits than some other credit cards.
If you make your repayments on time, manage your card responsibly and continue to manage other financial commitments well, you can start to build up your credit history. This could help you when you apply for credit in the future, as a higher credit score may help you qualify for more competitive credit card deals.
How do credit builder cards work?
You can spend with a credit builder card as you would with any other card, and then you repay what you’ve spent at a later date. There will be a limit to the amount you can spend on the card, which will typically be lower than on a standard credit card.
The credit card company will send a statement each month to tell you how much you need to pay and by what date.
At the very least, you will need to make the minimum monthly payment outlined in the statement. However, it’s better to try to pay more than this, or clear your balance completely, to minimise the amount of interest you’ll pay.
Just as with most standard credit cards, providers will charge interest on any outstanding balance, but you can avoid paying interest altogether if you pay off your balance in full each month.
As credit builder cards will generally charge a higher rate of interest compared to a standard card, it is particularly important to try to clear your balance.
If you miss payments, make late payments or go over your credit limit, you could face penalty charges and your credit score may be affected.
Setting up a direct debit can help to make sure that your payments go out on time.
» MORE: How do credit cards work?
What are the pros and cons of credit builder cards?
Credit builder cards can be beneficial to people who may struggle to get a standard credit card, but there are potential disadvantages to be aware of.
Advantages of credit builder cards
Advantages of taking out a credit builder card include:
- You’re more likely to be accepted for these cards if you have a poor or limited credit history.
- You could start to build up your credit score if you pay off the card on time.
- If you build up your score with a credit builder card, you may be able to access credit cards with more competitive interest rates and perks in the future.
- Purchases you make on the card worth £100 to £30,000 are eligible for protection under Section 75 of the Consumer Credit Act.
Disadvantages of credit builder cards
However, there are some possible downsides to taking out a credit builder card, including:
- The credit limits are typically lower compared to standard credit cards for people with better credit scores.
- They will normally come with higher interest rates than standard cards.
- If you would struggle to make your credit card repayments, there is a risk that you could end up in debt.
- They may not offer as many extra perks as other credit cards, such as rewards or introductory 0% interest periods.
Who are credit builder cards for?
Credit builder cards aren’t for everyone, but you may find them useful if:
- You’ve not taken out credit before and you don’t have much of a credit history. This could include students and people in their early 20s, as well as anyone who has recently moved to the UK.
- You’ve had problems with making payments in the past and your credit score has suffered as a result.
- You’ve got an individual voluntary arrangement (IVA), county court judgment (CCJ), debt relief order (DRO), bankruptcy, or other mark on your credit file that affects your eligibility for certain credit cards.
- You don’t qualify for other credit cards.
Just because you’re eligible for a credit builder card doesn’t necessarily mean you should get one. Think about whether you would be able to afford the repayments and manage your other credit commitments effectively so that your credit score would actually improve.
If you think you may find it difficult to clear your credit balance and make the minimum payments, a credit card may not be the best option for you right now. If you get behind on repayments, your credit score may suffer, which would defeat the object of taking out a credit builder card in the first place.
In addition to this, and because of the high interest rates associated with these cards, it can be very dangerous to take out these types of cards if you plan to use them to pay off existing debts which you cannot afford. If this is the case you may be better off seeking debt advice from charities such as StepChange.
How to apply for a credit builder card
When you apply for a credit builder card, you’ll be asked for certain information including your:
- current address (and, in some cases, your previous addresses)
- date of birth
- contact details
- employment status
- bank account details
The credit card company will also run a credit check during the application process. Even if you don’t have much information on your credit file, providers will always check your history before making a decision on your application.
As this is a hard credit check, this will leave a mark on your credit history and could temporarily affect your score.
If your application is successful, the provider will tell you what credit limit and interest rate you can get.
Before applying for a credit builder card, it’s worth seeing what credit cards you are eligible for. This reduces the chances of having your application rejected and helps you find the best card for your situation. That way, you can see what cards you are most likely to be accepted for without altering your credit score.
Credit Builder Cards FAQs
What is a credit builder card?
Credit builder cards are a specialist type of credit card. They are meant to give people with poor or limited credit histories an opportunity to improve their credit score by making payments on time and showing they can handle credit responsibly.
» MORE: What is a credit builder card?
How do I use a credit builder card to build credit?
You can use a credit builder card to make purchases, both online and in store. You would then repay the amount you’ve spent through monthly payments at a date set by the lender.
For a credit builder card to improve your credit score, you need to stay within your credit limit and make your repayments on time, as a minimum.
Bear in mind you also need to manage any other credit commitments and not get behind on other repayments, for example, to see your credit score improve.
Are credit builder cards the same as credit cards?
A credit builder card is a type of credit card. It works in the same way, but it is specifically designed for people who may find it difficult to get a more standard credit card.
Because they are intended for people with lower credit scores who are viewed as a higher risk, credit builder cards will often come with higher interest rates and lower credit limits.
Will a credit builder card improve my credit score?
If you stay within the terms of your agreement, including making payments on time and staying within your credit limit, a credit builder card could help to improve your credit score.
However, your credit history is affected by a range of factors, so whether your credit score improves or not will depend on other aspects of your finances, not just the credit builder card.
Can I get a credit builder card without a credit check?
No. When you apply for any type of credit card, including credit builder cards, providers will run a credit check. They will also use information from the credit check to work out the terms of the card, including its credit limit and interest rate.
How does a credit builder card help to build up your credit score?
A credit builder card can help you to build up your credit score by giving you the opportunity to borrow money and repay it by a set deadline. If you make repayments on time, they can help to prove that you can manage your credit effectively.
The credit card provider will report your payments to credit reference agencies (CRAs), and this positive information can help to build up and increase your credit score.
Am I eligible for a credit builder card?
Different card providers will have different eligibility criteria, but you will normally need to be at least 18 or 21 years old and a UK resident to get a credit builder card.
If you have a bad or a limited credit history, you may still be eligible for a credit builder card as they are designed to help people with poor credit. However, check the requirements of individual providers as some may require a minimum income or may not accept applications from people with CCJs, for example.
Can I get a credit builder card with no credit history?
Yes, you may be able to get a credit builder card even if you don’t have a credit history, although the final decision will rest with the individual provider. Different providers will have different criteria, so you may not always qualify for a credit builder card if your credit history is limited.
Can I get a credit builder card with bad credit?
Having bad credit won’t necessarily stop you from getting a credit builder card, but you may not be eligible for every deal. The decision will rest with individual providers.
If you have bad credit, you can see what cards you may be eligible for before you apply.
» COMPARE: Credit cards for bad credit
Can I get a credit card if I don’t have an income?
In most cases, credit card providers will require you to have some form of income to be accepted for a credit card, whether that’s from a full-time or part-time job or from benefits. However, depending on your circumstances, it may still be possible to get a credit builder card if you’re on a low income or your lack of income is temporary, if you’re unemployed for example.
What are the interest rates on credit builder cards?
The interest rate you get on a credit builder card will vary, depending on your individual circumstances and the credit card company.
Typically, credit builder cards will charge a higher interest rate than standard credit cards.
What credit limit can I get?
Credit builder cards usually come with lower limits than standard credit cards for those with better credit scores. The limit could be as little as £100 or it could go up to £1,000 or higher. Your credit score and financial situation will affect the credit limit you get.
If you prove you can make payments and manage your card, you may be able to increase your credit limit.
How long will it take to build credit?
This depends, as your credit score is affected by many different factors.
It could take at least a few months of regular payments on your credit builder card before you start to notice a change in your credit score. Overall, the length of time it will take to build credit will depend on the state of your credit history and how you manage your credit card, as well as how well you manage other areas of your finances.
» MORE: How to check your credit score
Do I need a credit card to build credit?
You don’t need a credit card to build credit. Your credit history is affected by a wide range of factors, and a credit card is just one way to show you can make payments and handle credit responsibly.
For some people, getting a credit card won’t be the best way to build credit. A credit card can only help you to improve your credit history if you can afford the repayments and avoid getting into debt.
» MORE: Should I get a credit card?
How else can I improve my credit score?
A credit builder card isn’t the only way you could improve your credit history.
If you have any other credit products, such as a mortgage, loan, overdraft, and car finance, repaying these on time could help to improve your credit score. Rent and bill payments could also affect your score.
Other factors that could help your credit score include registering to vote and limiting the numbers of applications you make for credit.
Can I use a credit builder card to withdraw cash?
You may be able to use a credit builder card to withdraw cash, but this is likely to be an expensive choice as providers will often charge higher interest or extra fees for cash withdrawals.
Do I get Section 75 protection on purchases with a credit builder card?
As with any other credit card, any purchases you make on your credit builder card worth between £100 and £30,000 can qualify for protection under Section 75 of the Consumer Credit Act.
Are there any alternatives to credit builder cards?
Credit builder cards are not the only option if you want to borrow money but have a bad or limited credit history. For example, there are credit builder loans that are designed to help people boost their credit score as well. Credit builder loans are typically offered by credit unions and specialist providers.
Before taking out any form of credit, be sure you can afford to make the repayments.
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Helpful links for credit card issues
Money Advice Service - The government's Money Advice Service website provides concise, unbiased information on choosing and using credit cards as well as handy tools such as credit card calculators.
The UK Cards Association - The British trade association for card payment companies has an extensive range of guides on their website covering all the types of payment cards available to UK consumers including debt, credit and prepaid cards
Financial Fraud Action (FFA) UK - The Financial Fraud Action website features important advice on using payment cards safely and securely as well as information on the latest scams.
Financial Ombudsman Service - If you've already made a complaint to your card provider and have not had your issue resolved satisfactorily then the next step is to take up your complaint with the Financial Ombudsman.