Ceri Roberts
Adam French
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The best credit builder credit cards may help you improve your credit score, which is useful if you have a poor credit history or no credit history at all.
People with poor or no credit history are more likely to be accepted for this type of credit card, but a combination of high interest and low credit limits can make it an expensive way to borrow.
However, if you pay your balance off each month, a credit builder card could help you improve your credit score in as little as three to six months.
Best credit builder cards
You might be surprised to learn that you could be eligible for a credit card even with a low credit score. Credit builder cards can be a good choice if you have a poor credit history, as you’re more likely to be accepted than you would be for a card with a higher credit limit and more competitive APR.
When looking for the best credit builder cards consider rewards, such as cashback on spending, and representative APR. To build a good credit history it’s best to spend a small amount using these cards and pay it off in full each month.
What is a credit builder card?
Credit builder cards are designed to help you build (or rebuild) your credit score and improve your chances of qualifying for more competitive credit offers in the future. However, you need to make sure you manage your card correctly (as well as other credit commitments) to start seeing an improvement in your score.
If you’ve been refused credit, either because you’ve had debt problems in the past, have a low income, or don’t have a credit history – perhaps because you have just turned 18 or have recently moved to the UK – a credit builder card is one way to improve your credit score. It allows you to show that you can manage debt responsibly.
How do credit builder cards work?
A credit builder card works in the same way as any other credit card. Simply use it to make purchases either online or instore, making sure that you don’t exceed your credit limit.
Each month you will be sent a statement, which outlines the minimum amount you need to repay, including any applicable interest and charges. It’s important to make at least the minimum payment, and to ensure you pay on time – otherwise your credit score could be negatively affected.
To build a good credit history and potentially pricey interest payments it’s best to spend a small amount using these cards and pay it off in full each month.
Credit builder cards usually offer a lower credit limit than other types of credit cards. As a guide, you can expect your limit to be anything from £200 to £1500, depending on your circumstances. However, if you manage your card well, the lender may offer to increase this after a few months.
Interest rates are often higher for credit builder cards than other types of credit cards, with a typical APR of around 34%. For this reason, try to pay off your balance each month, or at least as much as you can. This could help reduce the amount of interest you pay, and it can also help to boost your credit score. Typically, if you pay your balance in full each month, you won’t pay any interest at all.
How can a credit builder card improve my credit score?
Managing credit responsibly shows potential lenders that you’re more likely to pay back what you borrow in the future – but this is just one way to improve your credit score and it won’t work unless you manage the card well.
A credit builder card can improve your credit score in the following ways:
- Making (at least) your minimum payments on time shows that you are a responsible borrower
- Using a small amount of your available credit improves your credit utilisation ratio, which shows lenders that you’re not overly reliant on credit. Aim to keep your balance below 25% of your available limit – so if your credit limit is £500, try to keep your limit below £125.
- Managing your account well over a longer period of time means you can establish a longer credit history, which helps show lenders your finances are stable.
Other ways to improve your credit score include registering on the electoral roll, checking your credit report and correcting any mistakes, and monitoring your report and statements for fraudulent activity.
Advantages of credit builder cards
The main advantages of credit builder cards are:
- You could build your credit score by making small purchases using your card and paying at least your minimum payment each month.
- All purchases between £100 and £30,000 are covered under Section 75 of the Consumer Credit Act 1974. This means you won’t be left out of pocket if there’s an issue with the item you bought, it isn’t delivered, or the company you bought it from goes out of business.
- As credit builder cards are designed for people with low scores, your application is more likely to be successful – even if you have a bad credit score.
Disadvantages of credit builder cards
Before applying for a credit builder card, consider the following disadvantages to help you decide if it’s the best option for you:
- If you don’t use your card sensibly – whether you overspend or miss payments – your debt could quickly increase and your credit score could drop.
- Higher interest rates mean credit builder cards are an expensive way to borrow. Can you be disciplined enough to keep spending to a minimum and repay most, if not all, of your balance each month?
- You may be offered a low credit limit compared to other types of credit cards.
- All credit applications will show up on your credit report, and this could affect your score – especially if you make several applications in a short period of time. To reduce the impact, only apply for one card at a time and check your eligibility to reduce the risk of an unsuccessful application.
How to use a credit builder card
To get the most out of a credit builder card, think carefully about how you plan to use it. To boost your credit score, consider the following tips:
- Use your card to spend a small amount each month, rather than making expensive purchases. Stay well within your credit limit to keep your credit utilisation low, and show lenders that you are not overly reliant on credit.
- Always make at least your minimum payment each month. If you’re likely to forget, set up a direct debit. This shows that you can be trusted to repay your debt on time, which is particularly important if you have had debt problems in the past. Doing this also protects your credit rating and means you won’t incur late payment charges.
- If possible, repay your balance in full each month. This means you won’t pay any interest when using your credit card.
- Don’t use your card for cash withdrawals or cash advances. These incur extra charges, making it an expensive way to borrow – and lenders often see this as a sign that you’re not managing your money as well as you could.
Am I eligible for a credit builder card?
Even though credit builder cards are designed for people with low credit scores, there’s no guarantee that your application will be successful.
To apply for a credit card, you will first need to satisfy some basic eligibility requirements. Typically these are:
- You must be aged 18 and over.
- A UK resident with a permanent address.
- You will probably need to have a minimum monthly income, although it may still be possible to get a credit builder card if you are unemployed
- Lenders have different requirements, and you will find it harder (but not impossible) to get a credit builder card if you have been declared bankrupt or have any recent individual voluntary agreements (IVAs) or county court judgements (CCJs).
Use an eligibility checker before you submit your application. This will tell you how likely you are to be accepted, and may even give you an idea of your credit limit and APR.
It’s quick and easy to check your eligibility online, via the provider or the broker, and this won’t show up on your credit report, so other lenders won’t be able to see any evidence of your search. This is a good way to target your applications, which means you can keep them to a minimum – repeated applications, especially if you were unsuccessful, will further impact your score.
Finally, don’t forget to check your credit score. It’s a good idea to do this regularly so that you can monitor your progress, spot any changes, and correct mistakes. Checking your score won’t affect your credit score, no matter how many times you do it.
It’s free to check your credit score with credit reference agencies like Experian and Equifax, or via platforms like ClearScore and Credit Karma.
How to apply for a credit builder card
After you have checked your credit score and eligibility, you can apply for a credit card online, or in person at a branch of the relevant bank.
Before you apply, think carefully about whether a credit builder card is right for you, and compare the cards you are most likely to be eligible for.
When you have narrowed down your options, think about how you plan to use the card and consider the following:
- Fees and charges: Check the fee for going over your limit or paying late, using the card abroad, and for returned payments (when payment can’t be collected). There may also be an annual fee, and charges for making balance and money transfers.
- The interest rates charged on both purchases and cash withdrawals.
- The minimum monthly repayment to be made each month.
- The annual percentage rate (APR), which is the amount you will be charged in fees and interest over a year if you don’t clear your balance in full each month.
When you’ve decided, it shouldn’t take long to fill out all the information either online or in person at a branch of the relevant bank.
For the provider to run a credit check you will need to provide the following:
- Address details for the last three years.
- Bank account details.
- Details of your income.
- Contact details, including email address and phone number.
When will I find out if my application is successful?
This depends on the provider – if you apply online you could find out in a matter of minutes, or it could take a few days, especially if you applied by post. If your application is successful, the next step is to sign a credit agreement. If you apply online you can do this digitally, but if you apply in person you will be sent the paperwork to sign and return.
Don’t forget to read the small print to check that you’re happy with the credit limit, interest rate, and other details such as fees and charges and the minimum payment amount. You’re under no obligation to sign, so don’t feel you have to if you’ve had second thoughts. Even if you do sign, you have a 14-day cooling-off period, which means you can cancel the agreement without giving a reason. However, if you have already used the card you will need to pay back any money borrowed, plus any interest due.
Once the paperwork is signed, your card and PIN will be sent in the post, which could take up to 10 days. Some providers offer a virtual card that you can add to your digital wallet and use right away.
What happens if I’m rejected for a credit builder card?
It’s disappointing to be refused a credit card, especially as the lender probably won’t give you a reason for its decision.
There could be several different reasons your application was unsuccessful, including:
- A history of missed payments, times you’ve exceeded your credit rating or a high amount of credit on other accounts.
- Too many applications in a short period of time.
- A lack of credit history.
- Failing affordability or basic eligibility checks.
- You’re not on the electoral roll, so lenders can’t verify your identity.
- Fraudulent activity or mistakes on your credit report.
If your application is unsuccessful, resist the temptation to apply again straight away. This is likely to be counterproductive as each application will leave a mark on your credit report, giving lenders the impression that you’re experiencing financial difficulties.
Instead, you can ask the lender which credit reference agency it used and check your credit report for free to see what you could do to improve your chances of being accepted next time. You can also use eligibility checkers to carefully target future applications to reduce the risk of being turned down again in the future.
Is a credit builder card right for me?
Applying for a credit builder card can be a good way to give your credit score a boost, but it may not be the best option for you.
Unless you’re confident that you can resist the temptation to spend, it may be better to focus on other ways to boost your credit score, such as paying off existing debt, making payments on time and waiting several months before making any new applications.
Credit builder cards often come with high interest rates, so if you use them to spend beyond your means you will pay a large amount of interest and your balance will rapidly increase.
If you’re applying for a credit builder card because of financial difficulty, be aware that borrowing money could make your situation worse.
Rather than taking out a new credit card or loan, consider seeking free debt help from charities such as:
Credit builder card frequently asked questions
A credit builder card is a type of credit card that’s designed to show lenders that you can manage debt responsibly. As a result, this may help to increase your credit score. Credit builder cards can be useful if you’ve found it hard to get credit because you have a poor or limited credit history or a low income.
This depends on your circumstances. A credit builder card can help to improve your credit score, but only if you use it responsibly, don’t overspend and keep up with your monthly payments. If you think you will struggle to do this there’s a risk your debt could increase so it may be better to look at other ways to boost your credit score.
There’s no magic trick that will improve your credit score quickly. However, if you use your card responsibly, you may see your score beginning to improve after 4-6 months.
As a starting point, check your credit report for free with credit reference agencies like Experian and Equifax, or via platforms like ClearScore and Credit Karma. Look out for any mistakes or signs of fraudulent activity, and work at reducing your debts, making all your payments on time, and keeping new applications to a minimum.
No, all new credit card applications require a credit check, which will leave a mark on your credit file. However, you can use an eligibility checker before you apply, which will give you an indication of how likely you are to be accepted, and this won’t be visible on your credit report. Bear in mind that credit builder cards are intended for people with poor credit, so you have a better chance of being accepted than with other types of credit card.
Different lenders have different requirements, but you may be able to get a credit builder card if you’re unemployed. However, you may only qualify for a low credit limit and the interest rate may be high. If you manage your card well, these may improve over time.
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