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. One way to improve a low score is to take out a ‘credit builder’ card, this is a common type of credit card for bad credit in the UK.
(Rather watch a video on this topic? Skip to the end).
What is a 'bad' credit score?
Your credit score is a 3-digit number calculated that shows you how lenders are likely to view you. Your credit score is based on all of the information held in your credit report.
If you have information on your credit report that suggests you repeatedly struggle to manage your credit (e.g. a history of defaulting on debt), you could be viewed as having 'bad' credit, or rather that you have a 'bad' credit history. This could mean you have a lower credit score which may make you appear risky to lenders, and mean you might struggle to get credit.
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.
You can read more in our article on the factors that affect your credit score.
What are credit build cards?
'Credit builder cards’ are credit cards designed to help you build up your credit score. They are available to people who might not be accepted for standard credit cards, and usually have high interest rates to reflect the level of risk the lender is taking. If you pay off the balance in full every month however, you probably won't have to pay any interest.
If you manage your credit builder account well, then over time your interest rate will decrease and your credit limit will increase.
How do credit builder cards help me improve my score?
Using a credit builder card will help you prove to lenders that you're a reliable person to lend to. You can use the card to build up a pattern of good, reliable borrowing behaviour.
If you use your card to make purchases, keep within your credit limit and pay the bill off in full and on time each month, this will demonstrate that you can be trusted with credit. This information will be reported to the credit reference agencies (CRAs) who will add it to your credit report, and recalculate your score. Proving that you can maintain this behaviour over time could not only help to boost your credit score, but it will also improve the way lenders view you, by showing that you can be trusted with credit.
By spending small amounts, paying your bills 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
VIDEO: Lily explains credit cards for bad credit (1m41s)