What is a credit builder card?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
19th April 2021
3 minute read
Do you have a bad credit rating but would still like to take out a credit card? Thankfully, you’re in luck. If you want to get a credit card for the sole purpose of improving your credit rating, then a credit builder card is ideal for you.
It can provide you with a line of credit for spending liberally and if you can manage it effectively, it can also increase your credit score over time.
It is the most commonly associated option with those who have a poor financial history, possibly including missed payments, late payments, CCJ’s or even bankruptcy. If you feel this applies to you, a credit builder card might be the right decision to get your score back to ‘good’.
Have a read below how you can improve your credit score with a credit builder card. It’s the equivalent of the Guru offering you a swig of a particularly potent elixir labelled ‘credit builder’. Mmmm… financial stability.
What can I use a credit builder card for?
Credit builder cards are the most effective when used simply for improving your credit score. This means you have to manage it well by avoiding overspending and keeping within your credit limit. That way you will get a tick next to your name each month and slowly begin to build back trust with major lenders or card providers.
In addition, it can also be used for building your credit score if you have never taken out a financial product before and your credit file is empty. This normally occurs if you have just turned 18 and are eligible for most forms of finance for the first time.
How should I use a credit builder card?
The way to use a credit builder card is the best practice for every other type of credit card: keeping your spending under control. The whole idea is to represent yourself as a reliable lender who can afford to pay back debts in a controlled way.
The following points should be considered when using a credit builder card:
- Pay off balance in full – make sure that if you’re spending money on your card that you have enough to pay it off every single month
- Pay on time – it’s no good being late on your payments, if you want to build your credit score you need to pay on time every time
- Keep your spending to a minimum – if you’re using a credit builder card it should be mainly for improving your credit score. Try to keep the actual spending to a minimum, and under control
- Have a low credit limit – to make sure you’re sticking to just improving your credit score, choose a low credit limit
- Avoid withdrawing cash – if you withdraw cash from an ATM with a credit card, you can often incur fees every time you do it. Stick to spending on the card to avoid additional charges
Being a responsible borrower will mean you can build up your credit score gradually, opening the door to more diverse financial products in the future including 0% balance transfer cards, 0% purchase cards, travel credit cards, personal loans and mortgages.
How else can I improve my credit score?
If you’d like to be proactive in your approach to building your credit score, you can also do the following whilst having a credit builder card:
- Electoral register – join the electoral register by registering with your address here
- Disassociate yourself from other people and addresses – having a joint account with someone else means your credit score can be affected by their bad credit. Get in touch with the 3 credit agencies listed below to disassociate yourself from them
- Apply less frequently – even if you feel like your credit score has got slightly better, there’s no need to dive in and apply for other credit cards in the meantime. This can lead to you being rejected by major lenders and undoing all the good work you’ve done with your credit builder card
Does a credit builder card sound like the best option for you? Try moneymatcher, our free online comparison tool to get an idea of what credit cards might be suitable for you. After taking a few personal details, we can conjure up the most suitable cards for you, all without affecting your credit score.