What is a credit builder card?
A credit builder card is a type of credit card specifically designed for people with low credit scores or who’ve never had a credit card before.
Also called ‘bad-credit’ credit cards, they might be a good option if you’re someone who, because of your financial situation, might not get accepted for a standard card. They could give you the chance to prove you can manage your debts in a responsible way. And, by doing this, you could start to build up your credit score.
How does a credit builder card work?
A credit builder card works in much the same way as a regular credit card. You can use it to buy goods and services up to a maximum spend limit, and you’ll then be charged interest on the amount you’ve borrowed if you don’t pay back what you owe in full each month.
The big difference with credit cards to build credit is that they’re likely to come with much stricter conditions. That’s because they’re meant for people who lenders see as higher risk borrowers.
For starters, credit limits (the maximum amount you can borrow at any one time) tend to be much lower, typically between £100 and £1,500. The interest charged on the amount you borrow is also usually much higher than a standard credit card.
A credit card’s APR (annual percentage rate) shows you how much interest you’d be charged, over the course of a year, for borrowing on credit if you don’t pay the outstanding balance back in full each month. APRs on credit building cards can often be at least 33%.
That makes it all the more important to pay off your card in full each time you get your bill, so interest charges can be avoided altogether.
Who is a credit builder card for?
Credit building cards are aimed at people who want to improve their credit score, or who don’t qualify for other cards. They might be for you if:
- You’ve struggled with debt problems in the past
- You’ve previously been declared bankrupt
- You have a track record of missed payments in your name
- You have a county court judgement (CCJ) against you
- You’re not on the electoral register
- Your income isn’t high enough for you to qualify for standard credit cards
- You’ve no credit history and have never borrowed before
How can I improve my credit score with a credit builder card?
By using a credit builder card sensibly, you can prove to lenders that you can be trusted with managing debt. Ultimately, this could improve your credit score. Provided you make your repayments on time and stay within your credit limit for several months, you may also see your spend limit raised.
Paying back what you borrow on time boosts your standing with financial providers, even if you’ve had debt problems in the past. The more your credit rating improves, the more chance you’ll have of being accepted for the best cards on the market. It should also make it easier for you to get accepted for a mortgage or a personal loan.
While it’s worth remembering that a lender’s decision isn’t based solely on your credit history, using a credit card to build your credit score could give you new opportunities.
How do I apply for a credit builder card?
You can apply for a credit card online through Compare the Market, or by going directly to the provider. You can also apply by phone, by post or in-branch.
Lenders will usually need the following information from you:
- Proof of ID
- Proof of your current UK address
- Your annual income
- Your employer details
- Recent bank statements
To apply for a credit card, you must be a UK resident and at least 18 years old.
Use our eligibility checker before you apply
Our online eligibility checker will give you an idea of whether you’re likely to be accepted for the cards you have in mind, before you make a full application. It’s a soft credit check, so it won’t affect your credit rating.
What features do credit builder cards come with?
Although the perks and features offered with credit builder cards are unlikely to be as attractive as those available to people with high credit scores, they can still have some appealing benefits.
The best cards to build credit often come with incentives that reward responsible borrowing, including cashback and credit limit increases after a certain period of time. Some credit building credit cards even let you track your credit score so you can see it improve - assuming you make all your payments on time.
The most important things to focus on when you’re comparing deals are the interest rate and credit limits. Then you can think about the extras you’re getting.
How do I use a credit builder card?
You can use a credit builder card to pay for things just like you would with any other credit card. But there are some key things to remember:
✓ Always try to pay back what you spend each month in full so you won’t get hit with high interest charges. If you really can’t pay the full amount, be sure to make at least the minimum repayment on time.
✓ Keep well within your credit limit by making sure you don’t overspend, tempting as it may be.
✓ Never make cash withdrawals on your credit card as you’ll face expensive charges.
It’s best to think of your credit builder card primarily as a way to boost your credit score, rather than a green light to spend money you don’t have.
What are the downsides of credit builder cards?
The main drawbacks of credit builder cards are high interest rates and low credit limits. If you don’t pay off your balance in full each month, it will be very expensive. You also won’t be able to borrow much money, although in some cases that can be a good thing as it should mean you can’t build up too much debt.
You’ll need to be patient as improving your credit score won’t happen overnight. You’ll need to show you can keep up debt repayments over time. This will increase your chances of being accepted for credit products with higher spending limits, lower interest rates and better rewards.
How do I compare credit builder cards?
We’ve teamed up with Runpath Regulated Services Limited to show the key features of each of the credit building cards that you can compare with us, helping you choose the card that’s right for you. Don’t forget, with AutoSergei, you can see which cards you’re likely to be accepted for, without affecting your credit record.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Frequently asked questions
Can I get a credit builder card without a credit check?
No, as with any application for credit, your lender will want to carry out a credit check to find out more about your financial history. But the bar tends to be set lower for credit building cards, so you’ll have a better chance of being accepted if you have a poor credit score.
Can I get accepted if I’ve had bad credit?
Yes, you could. Credit building cards are specifically aimed at people with bad credit or no credit history. But you’ll still have to pass a credit check and meet your lender’s eligibility criteria to be approved.
What happens if I’m rejected for a credit builder card?
If you’re refused credit, it could be tempting to apply for another card straight away in the hope that the result will be different. But avoid applying for too many cards in quick succession, as this can further damage your credit score. Take steps to improve your credit score before applying again.
How can I check my credit score?
You can get your credit report for free from a credit reference agency. There are three main credit scoring agencies in the UK – Experian, Equifax and TransUnion. They all hold information on how you manage your money, and lenders use this to assess your creditworthiness. It’s worth checking each of them as they don’t all hold exactly the same information, and even small errors can cause problems getting credit.
How do I repay my credit card?
The best way to pay off your credit card is by setting up a direct debit to automatically pay the full amount each month. This means you’ll never miss a payment or have to pay interest on the money you’ve borrowed.
It’s vital to keep up with your repayments because even missing a single payment could seriously affect future credit applications.
What do I need to find a credit builder card?
Just give us a few details, including:
- What you’ll use your card for
- Your address
- Your employment status
We’ll then show you a list of cards you’re likely to be eligible for.
Money product expert
What our expert says
“Ideally, try to stay under 25% of your credit limit. For example, if you’re allowed to borrow £1,000 on your card, try not to use more than £250 at any one time. By spending small amounts to keep the card active and paying off the balance in full each month, you’ll prove to lenders that you can manage debt responsibly and steadily build up your credit score.”
Why use Compare the Market?
|Find out what credit cards you could be eligible for in less than 1 minute**||Check without harming your credit score||93.8% of users would recommend Compare the Market to friends or family***|
**On average it can take less than 1 minute to complete a credit card eligibility check through Compare the Market, based on data in November 2020.
*** For the period 1st September to 30th November 2020, 12,477 people responded to the recommend question. 11,706 responded with a score of 6 or above, therefore 93.8% are likely to recommend.