A simples guide

Credit builder cards

If you’re struggling to find a credit card lender to accept your application, don’t fret. There are lots of reasons why you might end up in this predicament, but there should be a credit card out there for you. In most cases, what could solve the problem is a credit builder credit card to help get your credit history back on track. 


What exactly are credit building cards?

Think of them as entry level credit cards. They might suit you if you’ve never had a credit card before or if your credit history isn’t so great.

Contrary to popular belief, there isn’t a universal rap sheet of people with poor credit scores. Your credit history is made up of lots of different elements – such as whether you have a bank account and if you do, how you manage it. It’s also based on things like whether you have any direct debits and if you’re on the electoral register (so lenders can check you live where you say you do).

Think about what joint loans you have (such as a mortgage) as well as any shared bank accounts you have – because the credit history of the person you share those with will also affect yours.

Oddly if you’ve never used credit and never borrowed then you might find you’re refused a credit card. If this is the case, the refusal is usually down to the fact that lenders have no idea whether you’d be a good candidate for them to risk lending money to (you’re basically off the grid).

So you could find yourself the focus of a poor credit history for various different reasons. If that’s the case then credit builder cards offer a way to change that. 

How do credit builder credit cards work?

The main differences will be that credit builder cards will have different (often lower) criteria for candidates to meet before they will be accepted. As a result the annual percentage rate (APR) is likely to be much higher than a standard card as the credit card provider perceives they have a higher risk of you not paying of your debt. The APR is basically the rate of interest you’ll have to pay on your debt plus any fees that your lender has added. Credit builder cards will also typically only let you borrow a lower amount of money compared to a standard credit card to lower the potential risk. 

credit cards
credit card and laptop

What are the pros and cons of a credit builder card?

Well, they’re a good option if you’ve been refused or never had a standard credit card. They’re also a good way to manage and track your spending as some cards will give you free alerts telling you what you’ve spent so far.

If you use your card properly and pay off the debt quickly, then some issuers may increase your credit limit or even lower the APR you have to pay.

Disadvantages are the lower credit limits and the high interest rates. But these are short term drawbacks which you’ll hopefully be able to move on from once your credit history starts to look a bit rosier. 

What can I do to keep a good credit history?

When you get your credit builder card, you’ll need to make sure you manage your money effectively. That just means you’ll need to budget in order to pay off your monthly bills in one go, otherwise you’ll be saddled with huge interest charges and an even bigger debt. If you pay off your credit card balance every month you will not pay any interest on the amount you owe.

It’s always going to be tempting to buy something you really want but probably don’t need so don’t do it unless you know you can pay it off when the bill comes in. You also need to stay within the limits of your card and not go over the amount set as this could negatively impact you.

Keep at it and you’ll soon be able to switch to a regular credit card. Making sure you have a good credit history is vital if you eventually want to do sensible grown up things like owning a home or taking out a bank loan. So why not take the first steps in building your credit scores and compare the market with us for the right card to suit your needs.

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