A credit builder card is specifically designed to help you build your credit score if you have bad or no credit history.
By Laura Rettie, Personal Finance Journalist.
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.
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:
Sometimes people call credit cards to build credit ‘bad credit cards’ or ‘poor credit cards’.
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.
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.
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:
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.
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.
We're on a mission to improve the finances of the nation by helping you to spend wisely and save money
We're on a mission to improve the finances of the nation by helping you to spend wisely and save money
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.
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:
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.
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.
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.
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.
Paying your bills on time and in full each month will help build your credit score.
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.
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.
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.
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.
