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Credit cards for bad credit

What are credit cards for bad credit? Everything you need to know about using a credit builder card

Being turned down for a loan or credit card can be frustrating, especially if you’re told it’s because your credit score is too low. But it can also be an opportunity to look at your credit report in depth, see which factors are affecting your score, and get control of your finances.

One of the many ways of improving a low score is to take out a credit card for bad credit, or ‘credit builder’ card. This article describes what they are, how to use them, and what to look out for.

What is a bad credit score?

Your credit score is a 3-digit number calculated based on your credit report, and can be considered an indication of how likely you are to pay back any money that you borrow.

There is no set number that counts as a ‘bad’ credit score — lenders will assess the information on your credit report differently. However, if your report has negative factors such as missed payments, Individual Voluntary Arrangements (IVAs), County Court Judgments (CCJs) or bankruptcy, it’s likely your score will be low and you will be considered ‘risky’ to lenders.

Other reasons your score could be low is that you’re not registered on the electoral roll, or have mistakes such as wrong names and addresses on your credit report. These mistakes can be fixed by contacting the lender involved, or disputing the information with the relevant credit reference agency. If there’s something wrong in your ClearScore account, you can fix it by going to the Help section and using our disputes process.

Your score may also be low simply because you haven’t used much credit, and have a thin credit file. This may seem odd, but without credit history, lenders have no evidence that you can handle your borrowing well. In this situation, using a credit builder card can help you build up your file and your score from scratch.

What are credit cards for bad credit?

Credit cards for bad credit, or ‘credit builder cards’, are cards designed to help you build your credit score.

These cards are available to people who may not be accepted for standard credit cards, however they usually have very high interest rates to reflect the risk the lenders are taking. Pay your balance in full every month, however, and you won’t pay any interest.

Many credit builder cards will also decrease your interest rate and increase your credit limit if you manage your account well.

How do credit builder cards help me improve my score?

Every time you use these cards and pay them off, this information is reported to credit reference agencies, and lenders in turn will see this on your report. It’s like building up evidence on your file that you are a responsible borrower.

By spending small amounts, paying them off in full, and never going over the credit limit, you can repair your credit score or build up a credit history from scratch.

Over time you may be in a position to apply for a conventional credit card with a lower interest rate.

What’s bad about them?

The main disadvantage of these cards is the high level of interest they charge. It’s a good idea to balance in full every month to avoid paying over the odds.

How likely am I to be approved?

This will depend on the lender, however some providers will accept people with no credit history and even if they have had County Court Judgments and bankruptcies (provided they were not in the last 12 months).

On your ClearScore account in your Offers section you can see your eligibility rating for credit products, which can help take some of the guesswork out of applying for a card. It’s best to read the card criteria carefully.

How should I use my credit builder card?

  • Spend a little on the card each month and pay it back in full and on time
  • Setting up a direct debit to pay your balance in full every month can make this easier
  • Don’t go above your credit limit, as you may be hit with charges
 

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