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. They are sometimes known as ‘bad credit’ credit cards.
A credit builder card might offer a lower credit limit to begin with, 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 3 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 allow you access to the money you need at better interest rates.
It’s a common misconception that if you’ve always managed your money responsibly and you’ve never taken out credit before, you’ll be able to get your hands on the money you need quite easily. This will have left you with a thin credit history, which can be a red flag for some lenders.
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. Having a thin credit history means that lenders may not be able to see the evidence they’re after.
If this is the case for you, you’re more likely to be accepted for a credit builder card to begin with.
2. Give you a second chance
We all know life can throw you a curveball now and again. If this has resulted in you struggling to manage credit in the past, you’ve likely been left with a poor credit history that’s holding you back from better financial products. 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 credit builder card can offer people with poor credit the second chance they need to start rebuilding their credit history.
3. Build your credit score
As well as potentially allowing you to access credit when you’ve been turned down elsewhere, a credit builder card comes with the benefit of improving your credit score if used properly. Ultimately, this could lead to you being offered better financial products in the future, so it can be a win-win situation! But remember, missing payments and maxing out your credit limit will harm your credit score further.
Things to consider with a credit builder card
There are a few things to keep in mind when taking out a credit builder, such as:
- you must try to make 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. 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
- only ever borrow 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 interest and charges on top of your balance, making it even more difficult and expensive to repay
- think 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 30% 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 or bank account showing on your report. 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 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 rejected 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 facility, you can find out if you’ll 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
Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.