What Is a Credit Builder Card?

25th Mar 2024

If you don’t have a credit history due to never having taken out a loan or credit before or are new to the UK, one way of starting to create your credit score is to use a credit building card. These cards can also be useful for people who already have a poor credit history. When used responsibly, these credit building cards can help to show that you have a responsible attitude to credit and can be trusted to manage your money.

Why Building Your Credit Is Important

Building your credit score is important because your credit score reflects your credit history and is used by lenders when deciding whether to extend credit to you. A higher credit score increases your likelihood of approval for loans and credit cards with lower interest rates.

How Credit Builder Cards Work

Credit builder credit cards typically have a low credit limit and a high Annual Percentage Rate (APR). Although the interest rate is usually high, if you pay off the balance in full each month before it is due, you won’t pay any interest at all. The idea with a credit building card is that you spend a small amount on the credit card each month, and then pay it off before the bill is due. Doing this consistently every month will start to boost your credit score as you demonstrate that you can manage your finances responsibly.

Can You Get a Credit Builder Card with Bad Credit?

While there's no guarantee of being accepted for any credit card, having bad credit, insufficient credit history, or being new to the UK makes you a typical candidate for a credit builder credit card. Always use an eligibility checker tool on the website of the companies offering this style of card to assess your chances of being approved before going ahead and making a firm application. Each company has its own rules about who they want to have as customers, so don’t assume that you will be approved for one card just because you have been approved for others. You might have to repeat the eligibility checker several times before finding the deal which works best for you.

Other Ways to Rebuild Your Credit Score

There are other steps you might want to take to rebuild your credit score without using a credit building card. These include:

• Prove where you live by getting onto the electoral register at your home address.
• Make payments on time – manage any existing credit cards or loans responsibly rather than trying to take out a new credit building card.
• Watch your limits – stay within your credit card limits, and try to avoid using a high percentage of your available credit.
• Get into the habit of checking your credit report regularly, and ask the credit referencing agencies to fix any mistakes you find.

Using Your New Credit Builder Card

When you get your new credit builder card, set up automatic direct debit payments to avoid missing a payment by mistake. Don’t use it to withdraw cash; just to make purchases.