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Last updated October 2020
A credit-builder credit card is designed for those with no or poor credit history. Credit-building credit cards are also sometimes referred to as ‘bad credit’ credit cards. Credit-builder cards can help you build your credit score over time, which can open up better opportunities in the future.
With so much resting on your credit rating, if yours is poor, it can make it so much harder to get approved for things like mortgages or car finance. Those with poor credit always end up paying more to take out loans which only continues the cycle. A credit-builder credit card is a solid way to start taking back control over your credit history.
If you have poor or no credit history, that doesn’t mean you can’t get a credit card. There are options out there for you. However, bear in mind that credit cards for those with bad credit will have certain limitations.
Credit-building cards will typically have low credit limits and higher interest rates attached. This may not be ideal, but if you can commit to using the card well, you will see your credit score start to climb up.
Using the credit card doesn’t necessarily result in high-interest payments - providing you pay the balance in full each month. If you can do this every month for a long period of time, this will have a great effect on your credit score.
With a history of paying your balances in full and on time, lenders in the future will look more favourably on you. Over time, you will be able to access higher credit limits with lower interest rates for credit cards, loans and mortgages.
Did you know: There are other ways you can help boost your credit score, such as fixing simple mistakes on your credit report or getting on the electoral register. Before you apply for more credit, take a look at these 10 easy steps to help improve your credit score.
The main reason to get a credit-builder card is to actively build up your credit history over time. Many people make the mistake of avoiding any credit if they have had issues in the past, but this doesn’t help you build a positive credit history.
Some other advantages of credit-builder credit cards include:
Naturally, there are some downsides to this type of credit card. This type of credit card has certain limitations as banks view those with no or poor credit as a greater risk.
The main disadvantages of a credit-builder credit card are listed below:
We have listed out some frequently asked credit building credit card questions.
Credit-builder credit cards act in the same way as regular credit cards. The main difference is that there are stricter limitations. This means you may only be able to get a card with up to a £500 or £1,000 credit limit. High-interest rates may also apply, and you might not be able to get a card with features such as 0% balance transfers.
If you are worried about being accepted, credit-builder credit cards are designed for those with poor credit. While there’s no guarantee that you will be accepted, the eligibility criteria for these cards will typically be more lenient.
If you end up getting rejected for a credit card, the best thing to do is to avoid applying for too many new cards. Credit card rejections can damage your credit record. The next time you apply, make sure you do thorough research on the eligibility criteria before applying.
If you have never taken out credit before, this means you will have no credit record. This means that lenders have no way of knowing whether you will make repayments on time. For that reason, credit-builder credit cards are ideal. Putting a regular monthly expense on your credit card and paying it off straight away is a simple step towards building a good credit history.
Not sure what your score is? Credit Karma allows you to check your credit report for free.
Yes, providing you meet the repayment terms of the card provider. Paying off credit card debt on time without missing payments will positively affect your credit score.