What is a credit builder card?
A credit builder card (or ‘bad credit’ credit card) works like a normal credit card, but it’s designed for people who’ve got a less-than-perfect credit score or a thin credit history.
A credit builder card might offer a lower credit limit to begin with, and usually have higher interest rates due to the risk involved from the lender’s point of view. But this can often be improved with good management on your part.
The 2 main benefits of bad credit credit cards
If used sensibly, it can ultimately work to your advantage and carry several benefits, for example:
1. The first step on the credit ladder
A credit builder card could give you the opportunity to start proving your creditworthiness and if managed responsibly, could allow you access to other products with better interest rates.
It’s a common misconception that if you’ve never taken out credit before, you’ll be able to get your hands on the money you need quite easily. Because you’ve not had credit before, lenders don’t know how you will manage it, which can make your ‘thin credit file’ riskier to lend to.
When looking at your credit history, lenders like to see evidence that you’re a responsible borrower and have a history of paying back credit on time and in full.
2. Give you a second chance at rebuilding your credit history
We all know life can throw you a curveball now and again. Whether it’s a few missed store card payments, a late mobile phone bill, or a loan you’ve defaulted on, missed payments can show up on your credit report and affect your score as a result. A bad credit credit card can give you the opportunity to start building a healthy credit history, even if you have struggled in the past.
A credit builder card can offer people with poor credit the second chance they need to start rebuilding their credit history.
Things to consider with a credit builder card
There are a few things to keep in mind when taking out a credit builder card for bad credit, such as:
- Making your payments on time and in full, each month. If you can’t make the full payment, you should at least pay the minimum amount to avoid being charged late payment fees. Failing to pay the minimum amount could make your situation worse than it was to begin with because missed repayments will show on your credit record and could lead to defaults and other negative credit reporting.
- Only ever borrowing what you can afford to pay back. While the option to borrow more than you need might be tempting, doing so may leave you struggling to make your minimum monthly repayments. This could lead to you paying additional charges such as interest, making it even more difficult and expensive to repay.
- Thinking about your credit utilisation ratio. This is expressed as a percentage and is worked out by dividing the amount that you currently owe by your credit limit. For example, if your credit limit is £1,000 and you owe £500, your credit utilisation ratio is 50%. A high credit utilisation ratio can damage your credit score. You should keep your spending as low as possible – ideally under 25% of your credit limit.
Keep an eye on your credit score
Your credit score can be damaged by something as straightforward as an old address. By checking your credit report regularly and making sure all your details are up to date, you could improve your chances of accessing credit.
You can check your credit report with the three main credit reference agencies in the UK (Experian, Equifax and TransUnion). You can also check your credit report for free (for life) with our member-only platform, CredAbility.
Limit your credit applications
You might not know that every time you apply for a credit card it shows up on your credit report. Multiple credit applications could mean you’re less likely to be accepted for the product you’re hoping for. This is because it can give lenders the impression that you are desperate for cash.
Use eligibility checkers
By using eligibility checkers, you can see if you’re likely to be accepted before you apply. This avoids leaving ‘hard footprints’ on your credit report for lenders to see, as it only performs a soft search (unlike a formal credit card application).
How we can help?
Here at Ocean Finance, we specialise in offering credit cards to people with less-than-perfect credit scores. With our QuickCheck (soft search) facility, you can find out if you’re likely to be accepted before you apply – this will only be visible to you and won’t affect your credit rating.
Improve your credit rating with Ocean Finance
- Up to £1,500 credit limit
- Quickcheck won't impact your credit rating
- Check your eligibility in 60 seconds
Your credit score could improve if you pay on time and stay within the limit. Not doing so could harm it. Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.