Ruth Jackson-Kirby
Rhiannon Philps
Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.
Credit can seem like a vicious circle. You need a good credit rating to get credit, but it’s difficult to get a good credit rating without having any credit. This is where a credit builder card may be able to help.
A credit builder card is a specialist credit card that is designed for people with a low credit score or little to no credit history.
Having a limited or poor credit score may prevent you from getting a standard credit card, so a credit builder card could be an option if you need to access credit.
The main aim of these cards is to help you build up 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 your other credit commitments) to start seeing an improvement in your score. Read on to see how to use a credit builder card.
NerdWallet has partnered with Aro. Check your eligibility from a range of credit card providers without affecting your credit score, including:
The credit cards eligibility service is provided by Aro. The data you supply and submit to Aro is used to retrieve credit card quotes from Aro’s panel of lenders. By using their credit card eligibility service you are agreeing to Aro’s terms and conditions and privacy policy which can be found at www.aro.co.uk.
How to use a credit builder card
A credit builder card works in the same way as any other credit card. You can spend on the card and then repay your balance at a later date, plus any interest and fees.
And, as with all credit cards, purchases you make on the card worth between £100 and £30,000 could be eligible for protection under Section 75 of the Consumer Credit Act.
However, because credit builder cards are designed for people with poor or limited credit histories, they will often come with higher interest rates and lower credit limits.
For example, credit limits could be as low as £50 for some credit builder cards. The exact limit you get will depend on your individual situation.
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. For example, 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 rate on credit builder cards is 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 often expensive 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.
If you go over your credit limit or miss any payments, the provider may charge you a penalty fee. This would also be reported on your credit file and could affect your score.
» MORE: How do credit cards work?
Should I get a credit builder card?
You may want to consider getting a credit builder card if you’re finding it difficult to get a standard credit card. For example, credit builder cards may be suitable if:
- You haven’t managed to build up a credit history because of your age or you’ve recently moved to the UK.
- You’ve had problems making payments and struggled with debt in the past.
However, you should always consider whether getting a credit builder card is the right decision for you.
If you think you can manage your credit responsibly, including staying well within your credit limit and making all your payments on time, then you may want to consider a credit builder card. Used correctly, a credit builder card could be one way to build up your credit history and improve your chances of accessing more competitive credit card deals in the future.
But a credit builder card may not be a good idea for everyone. If you think having a credit card could tempt you to spend more than you can afford to repay, you could build up a significant debt and your credit score may drop as a result.
Given that interest rates on credit builder cards can be high, it’s important that you can afford to pay off your balance, as well as stay on top of any existing credit commitments.
It’s worth remembering that a credit builder card isn’t the only way you can improve your credit score. There are other ways you can start to build up your credit history without needing to take out extra credit, such as registering on the electoral roll and paying your bills on time.
You can check your credit score from the three main credit reference agencies for free. Some platforms offer monitoring services and tips on how to improve your score, for which there may be a monthly fee.
» MORE: Do I need a credit card?
How to get a credit builder card
If you decide that it’s a good idea to get a credit builder card, you can compare cards from different providers to help you find the best deal for your situation.
You should check whether you meet the eligibility requirements set by the provider and also look at the features of the card to make sure it offers everything you need. Some things to look out for are:
- The interest rate. Bear in mind you may not get the interest rate advertised as the provider will set it based on your individual circumstances.
- Whether there are any fees or extra charges for certain transactions.
- The credit limit.
- If the card has any extra perks, such as a limited interest-free period.
You can see what credit builder cards you may qualify for without having to formally apply for a card.
To check your eligibility, you just need to input some information about you, such as your name, address and income. You will then be able to see which cards you are likely to be accepted for, reducing the chances of you applying for an unsuitable card and getting your application declined.
Checking your eligibility only involves a soft credit check, which won’t affect your credit score.
When you actually apply for a credit card, the provider will conduct a hard credit check, which will appear on your credit history.
Dive even deeper
What is a Credit Card?
If used correctly, a credit card can be a convenient way to borrow money to pay for goods and services. There are several different types available, including balance transfer cards and credit cards for bad credit, which is why it makes sense to shop around to find the one that’s right for you.
Ceri Roberts
3 Reasons to Cut Up Your Credit Card and 3 Reasons to Keep It
Cancelling your credit card may seem the obvious next step if you’ve managed to pay off your balance in full. But there are several factors you need to consider before deciding whether to get rid of your card, including the effect it could have on your credit history.
Stoozing: Free Cash or Debt Trap?
Stoozing is a way of using a 0% interest credit card to allow you to maximise the money you can make on your savings. But there are risks involved with this money hack, so is it worth trying?