13th May 2021
What’s a credit-builder card and should I get one?
credit builder card

If you have no credit history or poor credit score, you might find it difficult to get approved for a loan. This is because lenders don’t know whether or not you’re a reliable borrower. A credit builder card is aimed at helping people who need to build up a credit history from scratch, or improve their credit score.

How does a credit-builder card work?

 Credit-building cards usually have a high annual percentage rate (APR) and a low credit limit. This means you won’t be able to borrow a large sum of money, while the interest rate will be higher than normal on outstanding balances.

If you repay the balance in full each month, you can avoid paying any interest. Over time, this will build your credit score and make you more attractive to lenders by showing you have your finances under control.

Top tips for managing your credit builder card:

  • It’s important that you pay your card off in full every month so you don’t pay interest.
  • Avoid late payments by setting up a direct debit or you may be charged a fee and your credit limit reduced.
  • Try to use below 25% of your available credit, or it could lower your credit score (if your credit limit is £2000, use below £500).
  • If you can’t pay the outstanding balance in full, make the minimum repayment as missing a payment can damage your credit score.

How do I get a credit builder card?

You’ll need to apply for a credit builder card and get approved. Although credit builder cards are generally designed for people with low credit scores this doesn’t guarantee you’ll be accepted, so you may want to try and improve your score before applying.

Each time you apply for credit, a hard search will be recorded on your credit report. This can temporarily lower your credit score. So, it’s important to space out your applications and only make one at a time.

A good way to avoid hard checks is to use an eligibility checker that lets you see a range of credit cards and the likelihood of being accepted. It asks for a few details such as your name, address, income and financial situation, and then shows you a list of credit builder cards to compare.

Different cards will come with different interest rates and some will have added benefits. Choose the card that prioritises what you want from a credit-builder card.

Take away

It’s important to only use a credit builder card to your advantage. If you end up paying interest on your debt, it will be very expensive. This will damage your credit score even more and force you to pay more for credit in the future.

There are other ways to boost your credit score to show lenders that you can manage your lending. The key is to keep making regular payments on time and (if possible) in full to prove that you’re a reliable borrower.

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