Credit Builder Cards to Help Bad Credit

Want to improve your credit rating? Credit builder cards can help by giving you a chance to establish a good credit history.

Ruth Jackson-Kirby Published on 11 December 2020. Last updated on 20 January 2021.
Credit Builder Cards to Help Bad Credit

Credit can seem like a vicious circle. You need a good credit rating to get credit, but you can’t get a good credit rating without having any credit. This is where a credit builder card can help.

What are credit builder cards?

Credit builder cards are credit cards aimed at helping people with a low credit score or no credit history to improve their credit score.

How a credit builder card can improve your credit score

A good credit score demonstrates you have handled credit responsibly in the past. That means you’ve borrowed money – usually with a loan, mortgage or credit card – and you’ve paid it back on time. So if you’ve never borrowed before, you are likely to have a low credit score.

Credit builder cards often accept applications from people who might normally be rejected for a credit card because of their credit history. If accepted, you can use your card sensibly to build a good credit history.

As the months pass and you pay your bills on time, your credit score will improve. Then, when you apply for credit in the future, the new lender will see you are a reliable borrower and you will have improved your chances of being accepted for other credit cards or loans.

How to use a credit builder card

The key to credit builder cards is to use them sensibly. Here’s how:

  • Stay within your credit limit. Borrowing responsibly means not exceeding your credit limit.
  • Keep your balance low. Credit rating agencies look at how much of your available credit you are using. Continually using £240 of a £250 credit limit could be interpreted as a sign you are struggling financially.
  • Pay your bills on time. A late or missed payment will damage your credit score.
  • Pay off your balance in full. The interest rates on credit builder cards are often high, meaning a debt can quickly spiral if you only pay your credit card minimum. Pay off the full amount on your bill each month and you can avoid paying interest.
  • Avoid withdrawing cash on your card. The interest rate is very high for cash withdrawals and is charged from the moment you take cash out at the ATM. It will also be marked on your credit report.

The pros and cons of credit builder cards

Advantages of a credit builder card

  • You’re likely to be accepted if you have a low credit score
  • It can help you build a better credit score
  • It improves your chances of getting cheaper credit in the future

Disadvantages of a credit builder card

Interest rates are likely to be very high

  • You can get into debt
  • It can damage your credit score if not used responsibly

How to get a credit builder card

First, use an eligibility checker to see which cards are most likely to accept your application. You give them a few details, and they tell you which cards are likely to accept your application. This can reduce the chance of being rejected, which can affect your credit rating.

Choose which card you want to apply for and double-check its minimum requirements. If you fit the bill, and the eligibility checker has said you have a good chance of being approved, go ahead and apply.

How to choose a credit builder card

If you are looking for a credit builder card, start by taking online to see which cards have the lowest interest rates. Also, keep an eye out for annual fees.

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Some credit builder cards offer an interest-free period of a few months when you first get the card. This period can be great if you want to spread the cost of a large purchase. Just make sure you clear the debt in full before the interest-free period ends, otherwise your debt will quickly build.

About the author:

Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more

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