Credit Building Credit Cards

A credit builder card is specifically designed to help you build your credit score if you have bad or no credit history.

Finding the best credit building credit card for you

By Laura Rettie, Personal Finance Journalist.

Laura Rettie

Credit building cards are a unique type of credit card designed for those with bad credit history. Learn how they work, what to look for when choosing the best one, and how they can help you with our guide.

What is a credit builder card?

A credit builder card is designed for people with no, little or poor credit history who need to build up their credit rating or improve their credit score.

Credit builder cards can be useful for reasons such as:

  • You’ve never borrowed any money before, so you have no credit history
  • You’ve been refused credit and need to improve your credit rating
  • You’ve borrowed before but defaulted on payments and need to rebuild your credit history
  • You’ve recently moved to the UK
  • You’ve just turned 18, and you’re a first-time card-holder
  • You haven’t built your credit record, and there isn’t much for lenders to judge you on
  • You’ve been declared bankrupt in the past
  • You’ve had a county court judgement (CCJ) against your name
  • You’re not registered to vote (also known as not being on the electoral roll)

Sometimes people call credit cards to build credit ‘bad credit cards’ or ‘poor credit cards’.

How do credit building credit cards work?

Credit builder cards usually have high-interest rates to start with. Unless you pay everything you owe on it back every month, you’ll be charged more in interest than other credit cards, so it’s important to always pay off your balance.

When you apply for a credit builder card, you’re likely to be given a low credit limit, meaning you’ll only be able to borrow small amounts on the card to begin with. This reduces the risk for lenders if you’re unable to pay back what you owe.

Unlike other credit card deals, you’re unlikely to find credit builder cards offering things like balance transfers, 0% interest rates or cash back on purchases.

How can I improve my credit score with a credit-builder card?

If you use a credit builder card regularly and pay back the entire balance you owe on it off each month and on time, you can quickly improve your credit rating. This will help you to get access to better deals on other financial products, such as loans, credit cards and mortgages.

Typically responsible use of a credit-builder card could help you to improve your credit score within six months.

Consistently paying your bills on time looks good to banks and providers, even if you’ve defaulted on payments in the past.

Applying for one of these cards and responsibly using it means you’ll have more options open to you after you’ve built up your credit rating. You could be offered cheaper borrowing, and larger credit limits may become available to you.

Top tips for improving your credit score using a credit-builder card:

  • Use your card regularly for spending only small amounts
  • Avoid withdrawing cash from your credit-builder cards
  • Repay your balance in full each month to avoid expensive rates of interest
  • If you’re unable to repay your balance in full, make sure you always repay at least the minimum repayment on time
  • Always stay within your credit limit
  • Keep your balance low - under 20% of your credit limit if you can

Are credit builder cards a good idea?

The advantages of using a credit builder card include:

  • Even if you have a no, little or a poor credit score, you’re likely to be accepted
  • It can help you to improve and build your credit rating
  • It’s one of the best ways to build credit
  • Improves your chances of being accepted for other financial products in the future
  • Getting access to cheaper borrowing is more likely after using a credit builder card responsibly
  • Having a card can help you to learn how to manage credit responsibly
  • Because your credit limit is likely to be low, you won’t be tempted to spend more on it than you can afford
  • Helps to give you access to larger credit limits in the future

The disadvantages of using a credit builder card include:

  • The interest rates on credit builder cards tends to be much higher than other credit cards
  • You can get into debt if you don’t repay your balance in full
  • It can further damage your credit rating if you don’t use your card responsibly
  • Your card could be used for credit card fraud
  • There may be other fees to pay, such as annual fees or fees for withdrawing cash

How do I get the best credit card to build credit?

Typically credit builder cards don’t have many features or add-ons like other credit cards, so when comparing them the things to look for are:

  • Minimum credit limit
  • Maximum credit limit
  • Interest rate/ APR (Annual Percentage Rate)

Typically credit builder cards charge much higher interest rates than conventional credit cards. If you pay off your balance in full each month, you won’t be charged any interest, so it’s important you only use your card knowing you can repay on time and in full to avoid expensive interest rates.

Most credit builder cards will only lend customers small amounts of money - typically between £50-£250. This means it's easier for you to pay back what you owe because you won’t be allowed to spend lots of money on the card.

More credit card options

Read more about different types of credit cards; rewards credit cards, balance transfer credit cards, and money transfer credit cards

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.

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Frequently asked questions

Is a credit builder card the same as a credit card?

A credit builder card works in similar ways to a regular credit card. You’ll be offered an amount you can borrow on the card to make purchases, and you’ll then be required to pay back the amount you’ve borrowed each month. 

Like other regular credit cards, if you’re unable to pay the total balance off, you’ll be asked to pay back a minimum payment instead. 

The two main differences between a credit builder card and other credit cards are the amount you’ll be allowed to borrow and the interest rate you’ll be charged if you don’t pay back what you’ve borrowed in full each month. 

Credit builder cards tend to have lower credit limits than other credit cards and charge higher interest rates. 

Unlike regular credit cards, if you have a poor, little or no credit rating, you’re likely to be accepted for a credit builder card.

Does cancelling a credit card hurt your credit?

Generally speaking, it’s good to keep unused credit cards open for at least six months so you can benefit from the history it will leave on your credit report. Credit reference agencies reward you for having accounts open for a long time. 

Closing your credit card accounts means you may lose out on building up your credit rating. 

Closing a credit card can impact your credit utilisation ratio. Credit utilisation measures how much of your total available credit is being used. The more credit you use, the worse the impact on your credit score. 

An example of how closing a card with a zero balance could impact you:

  • Credit card one has a £1000 limit, and your balance is £1000 
  • Credit card two has a £1000 limit and a £0 balance

Your credit utilisation on both cards combined is 50%. If you close credit card two, your utilisation jumps to 100%. 

Providers like to see you using low percentages of your credit limits combined over different products. So keeping an unused card open can help you in the long run.

What is a good credit score?

There is no one answer to this question because the UK's three main credit reference agencies score people differently. 

The higher your score, the more likely you’ll get access to better deals and rates on financial products. 

Experian score out of 999, Equifax score out of 700 and Transunion scores out of 710. 

How can I improve my credit score?
  • Register to vote 

Registering on the electoral roll at your current address will improve your credit score. Even if you have no intention to vote, putting yourself on the electoral roll will help, and you should get used to making it your priority every time you move. It’s important to do it even if you live with your parents or are in shared or student accommodation. 

  • Build your credit history 

If you’ve never borrowed money, taken out a mobile phone contract, or paid household bills, you may have little or no credit history. You can take steps to build your credit history to access credit and good deals in the future. 

  • Be a responsible borrower 

Paying your bills on time and in full each month will help build your credit score. 

  • Don’t view your credit limit as a target 

It’s important to try and keep your credit usage low. If you’re given a credit limit on a credit card of £1,000, you want to try and borrow no more than £250. Keeping your credit utilisation low demonstrates you’re not desperate for money and can be disciplined enough not to spend the entire amount. 

  • Correct mistakes on your report

If you notice mistakes like an incorrect address or a credit account you don’t recognise, it’s crucial you contact the credit reference agency so they can investigate. A rogue account could hold you back, and mistakes regularly happen. 

  • Avoid frequent moves 

Lenders like to see stability, so if you move house a lot, some credit lenders might assume you’re having a problem paying rent. This one is more difficult to avoid in your early life when you’re moving around because of university and your early career choices, but indeed a point to bear in mind, especially before applying for a large credit product like a mortgage.

  • Keep old accounts open 

Lenders like to see that you can manage multiple credit accounts over a long period of time, so even if you no longer use a credit card, it might be a good idea to keep it open rather than close it. Credit reference agencies reward you for mature credit accounts where you only use a small percentage of your credit limit.