Credit Building Credit Cards: The Essential Guide

What is the purpose of a credit-building card?

Credit builder credit cards are aimed towards those with low credit ratings or those who do not have any credit history. The credit score is a snapshot of your payment records that lenders analyse to determine whether you are creditworthy or not to be granted a line of credit in the first place. In a nutshell, credit cards to rebuild credit are for those who:

• Are willing to pay off their existing past-due debts
• Are motivated to increase their credit history and credit score
• Do not possess a credit score due to a lack of loans or credit cards

Individuals with a history of debt issues, such as those who have failed to keep up with financial commitments, who have a county court judgement (CCJ) against their name or who have already declared bankruptcy, are good candidates for credit-building programmes. By making prudent use of a credit-builder card, you may demonstrate to lenders that you are in control of your money and consequently a reduced risk.

Advantages of credit builder cards

Rebuilding credit cards operate similarly to standard credit cards in that they allow you to procure money to pay for products and services up to a predetermined limit. Some of its advantages are:

• Higher Chance of Acceptance

If your credit history is poor, you could be accepted for a credit builder card whilst other mainstream cards may not be suitable for your circumstances.

• Helps Improve Your Credit Score

Maintaining a low outstanding balance on your credit cards while always paying your payments on time can help you boost your credit score.

• Your purchases are protected

As with all credit cards, credit builder cards offer the same customer protection under section 75 of the Consumer Credit Act if things go wrong with a purchase made on a credit card.

Disadvantages of Credit Builder Cards

In addition to the advantages described above, the usage of credit cards to rebuild credit could have several drawbacks, including the following:

• Reduced credit limit

Because you’re establishing a relationship of trust with lenders, you will be borrowing less money than you might with conventional credit cards.

• Higher Annual Percentage Rate

Interest rates will be greater than those charged by traditional credit cards.

• Risk of incurring further debt

If you have difficulty paying back what you owe, your credit score could suffer, resulting in a lower credit score.

How to Make the Most of a Credit Builder Card

Exercise caution with the usage of credit builder cards. Borrowing wisely means avoiding going over your credit limit. Here’s how it’s done:

• Credit rating companies consider how much of your available credit you are currently using. Using £900 of a £1000 credit limit consistently might indicate that you are experiencing financial difficulties.

• Your credit score will be impacted if you make a late payment or if you miss a payment.

• Make a complete payment on your outstanding debt. The interest rates on credit builder cards are often high, which means that if you merely pay the minimum amount due on your credit card, your debt may soon spiral out of control. If you pay off the whole balance of your payment each month, you will avoid incurring interest.
• Avoid making cash withdrawals using your card. The interest rate on cash withdrawals is relatively high, and you start being charged interest from the day you remove cash from the ATM.

The best way to get a credit builder card

To begin, verify your eligibility using an online eligibility checker to see which credit cards are most likely to approve your application. Upon providing a few facts, they will tell you which credit cards are most likely to approve your application. This may decrease the likelihood of getting refused, which might harm your credit rating.

Be sure to check the product’s eligibility criteria before applying.  If you meet the criteria and the eligibly checker indicates you have a strong possibility of approval, the next step is to complete the full application process.

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