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Credit cards for bad credit: rebuild your credit score

We look at the pros and cons of credit builder cards, and discuss some of the other ways you can grow your credit score. We’ll also explain why your credit score might be low and what you can do to get it on good ground. Updated by Leif Kendall on 31 January 2022

09 February 2017Frankie Jones 5 min read

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If you’ve got a low credit score – or you’ve had an application for a credit card or loan declined – then getting a credit builder card can help you show how well you can manage credit.

In this article we focus on the pros and cons of credit builder cards, and discuss some of the other ways that you can grow your credit score. We’ll also look at some of the reasons why your credit score might be low, and what else you can do to get your credit score on good ground.

First, let’s talk about credit builder cards.

Credit builder cards are like ladders. If you have a low credit score, you can use a credit builder card to help you climb up to a higher credit score.

These cards give you a little bit of credit, so you can spend small amounts on the card, then pay off the balance and gradually improve your score. If you’ve already got a credit card, you can use that to rebuild your credit score. Just follow these five rules below and you’ll likely see your score start to improve.

Credit builder cards are designed for people with low credit scores. Some lenders will offer credit to people with no credit history or who’ve had county court judgements (CCJs) or a bankruptcy – provided they weren’t in the last 12 months. See if you’re pre-approved.

On ClearScore, you’ll find a range of offers tailored to your credit score. Our Triple Lock guarantee locks in your credit limit, rates, and pre-approvals, so you can be ClearScore sure that what you see is what you’ll get.

Use the five tips to grow your credit score with a credit-builder card:

  1. Use your credit card for small purchases each month. Spending small amounts on the card – and then and making repayments on time and in full – increases your score more than if you were never to use it.

  2. Repay your balance in full to avoid paying high interest charges. Many credit builder cards have higher-than-usual interest rates.

  3. Pay at the least the minimum amount each month. Missing a payment can have a negative impact on your credit score.

  4. Never use your card to get cash. You’ll pay interest on cash withdrawals from the day you get the cash – so even if you pay the balance in full when you get the statement, you’ll still pay interest.

  5. Always pay on time. Setting up a Direct Debit helps you stay on top of your payments.

If you use your credit builder card regularly, and keep making payments in full and on time, you’ll soon see the positive effect it’s having on your credit score.

We send you your report every week, so you know exactly where you stand when it comes to credit. Download ClearScore - or sign in to your ClearScore account

For most people, a bad credit score is one that stops them from getting a loan, mortgage or a credit card.

Lenders each have their own rules when it comes to credit scores. For some lenders, your credit history is more important than your score. And some lenders are more accepting of people with lower credit scores.

Low credit scores are usually caused by:

  • Lack of credit history. Your credit score is based on your lending activity. If you don’t borrow money, your credit score might be very low.

  • Missed payments. If you occasionally miss payments, lenders might worry that you struggle to pay back what you owe, so might not want to lend to you again.

  • Bankruptcy, defaults or county court judgements.

The great news is that your credit report is always changing. As your spending habits change, so does your credit score. It’s a bit like building your financial fitness – your credit score usually responds quickly to every bit of effort.

There’s nothing wrong with having a bad credit score. But having a low credit score can make borrowing money more expensive.

Having a high credit score tends to get you better offers on credit, which means it costs you less to borrow money. And the opposite of this true too. Having a low credit score tends to get you worse deals on credit. This means it costs you more to borrow money.

A poor credit score can also close the door on some financial products. For example, you’re more likely to be approved for things like car loans, mortgages, 0% interest credit cards and personal loans when you have a high credit score.

Having lots of credit cards can be bad for your credit score. And if you have several credit cards, with a large combined credit limit, lenders might hesitate to offer you more credit, even if your outstanding balances are very low. This is because lenders want to avoid any risk of you getting into levels of debt that you might find it hard to get out of.

While credit builder cards are designed for people with low credit scores, they’re not guaranteed for everyone. There’s still a chance that your application could be declined. This could happen if you have no credit history, for example.

When you apply for credit, lenders search for your credit report. These searches become part of your credit history, and can be a reason why lenders decline your application.

For this reason, applying for several credit cards over a few days or weeks can make it harder for you to get credit.

If your application for a credit builder card is declined, you might need to wait a month or more for your credit history to improve. It could be that a different lender is more accepting of your current credit score, but another application could risk reducing your credit score further.

If you’ve been declined for a credit builder card, there are several other ways you can improve your credit score:

Time. Over time, any negative reports on your credit history fade away and become less significant. But time alone may not be enough to repair your credit history – you might also need to use credit responsibly to nudge your credit score upwards.

Overdraft. If your bank lets you have an overdraft – even for a very small amount – this’ll have an impact on your credit score. Just make sure to stay out of your overdraft, or only use if for short periods of time.

Phone contract. If you pay for a mobile phone with a monthly contract (instead of buying the phone outright), then you’re effectively getting a loan from the phone provider. If your credit score is very low, you might not be eligible for the most expensive phones, but getting a cheaper phone on a contract can help get your credit score on good ground.

Loqbox. Loqbox is a clever way to increase your credit score. To do this, you apply for a ‘loan’ with Loqbox, which you then repay over the next 12 months. The loan and your repayments are reported to the credit agencies, so your credit score gradually rises.

The ‘loan’ from Loqbox is not really a loan though, because they never give you the money. Instead, Loqbox hold on to the loan amount in a locked account. Your ‘repayments’ become savings, and when the ‘loan’ is is repaid, you get your money back. Loqbox is completely free if you transfer your savings to one of their recommended partner accounts, or £30 if you want the money transferred into an existing account.

Loqbox may be more effective at increasing your credit score than simply waiting for 1 year, because it gives you a chance to use credit wisely. Check out Loqbox on ClearScore


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Written by Frankie Jones

Copywriter

Frankie takes the often confusing world of finance and makes it clear and simple, to help you get your money sorted.