About credit building credit cards
If you don’t have enough credit history because you’ve never had a loan or credit before, or because you’re new to the UK, a credit building card might be right for you. They can also help if you already have a bad credit history. If used responsibly these cards are good for improving your credit score, and that’s important because it helps lenders work out whether or not to lend to you.
Having a good credit score usually helps you to apply for loans and credit cards offering lower rates of interest, or special benefits like interest-free periods or cashback. This could help save you money in the long term.
Why do you need to build your credit?
Your credit score indicates your credit history, the lenders use this to decide whether to lend you credit. A good credit score will increase your chances of getting approved for loans and credit cards with lower interest rates. Credit builder cards can help you improve your credit profile if you have a bad credit score or no credit history.
How do credit builder cards work?
A credit builder credit card has a low credit limit and a high APR (Annual Percentage Rate). You can make all kinds of purchases using this card. A higher APR means you will have to pay a higher interest on the outstanding balances. With this in mind, it's best for you to make your repayments in full and on time. Paying on time every month will have a positive effect on your credit score.
Can a credit builder card improve your credit rating?
Yes, as long as you use them properly. Credit cards for building credit are designed to help you improve your credit. The important thing to remember is that you must repay the minimum amount each month and never miss a payment or go over your credit limit. If you do miss a payment, pay late or go over your limit, this could damage your credit score.
Some credit builder cards are offered to people with a bad credit history. These cards usually have lower credit limits and higher interest rates. This can help you to manage your money more easily and avoid getting into financial trouble. As long as you repay the full balance on time each month before your statement is produced, you wouldn’t need to pay any interest on your purchases.
Can I get a credit builder card if I have bad credit?
There is no guarantee to being accepted for a credit card. But if you have bad credit, not enough credit history, or you’re new to the UK, a credit builder credit card could help you. If you’ve recently been discharged from a bankruptcy, you might be able to rebuild your credit score using one of these cards. If any of these situations apply to you, you have a better chance of getting a credit builder credit card than a standard one.
It’s always best to check your eligibility before you apply for any credit card. At Vanquis, we’ll help you check online whether you’re eligible for one of our credit building cards. It’s a simple process, and it only takes around 60 seconds to find out whether it’s likely that you can have one of our cards. View our credit card range as a first step before you check your eligibility.
How lenders decide who to lend to
Whenever you apply for credit, a lender will make a decision about lending to you. They start by checking your credit history with at least one credit reference agency, such as Equifax, Experian or TransUnion. The lender then adds this information to your application and any other details it has about you. These details may include:
- Employment status
Some lenders might give you a lower credit score if you’re not in full-time paid work. - The type of credit you want
Loans and credit cards applications are usually scored differently. - The credit you already have
If you already have overdrafts, loans or other credit cards, this can affect your score. You might be marked down if you’re close to the credit limit on these other products. - Any previous applications
Every time you apply for credit, this is recorded on your credit file. Some lenders mark people down if they’ve made lots of applications over a short period, because it could mean that the borrower is desperate for credit or struggling with bills.
There’s no ‘magic number’ when it comes to your credit score, and every lender has their own conditions that borrowers must meet. That’s why it’s a good idea to carry out an eligibility check before you apply for a card, and only apply for credit cards that suit your situation.
The best ways to rebuild credit
You can take several different steps to help rebuild your credit score:
- Prove where you live
To help combat fraud and identity theft, lenders will want to know that you are who you say you are. To help your application, make sure you’re registered on the electoral roll wherever you currently live, even if you live in shared accommodation or at home with your parents. - Make payments on time
A good way to show that you can handle credit responsibly is to always pay off any credit and your bills on time and in full, every month. - Don’t use too much credit
You’ll be given a credit limit when you take out a credit card. You must make sure that you never exceed this limit. It’s a good idea to not get too close to your limit either and to pay down the balance when it is too close. To give you a credit score, credit referencing agencies look at what percentage of your available credit you actually use. It can count against you if you use a high percentage of your limit. For example, if you have a credit limit of £1,000 and use up £600 of this, you are using 60% of your available credit. - Fix mistakes on your report
Old or incorrect information on your credit file could damage your overall credit score. That’s why it’s important to regularly check your credit file and make sure that it’s up to date and only contains accurate information.
How to avoid damaging your credit score
When you’re trying to rebuild your credit score, it’s important not to fall into bad habits. Think about these important things to avoid:
- Limit how much credit you use
Borrowing responsibly is the key to using a credit card for building up your credit score. Try to use your card often, but make sure you can pay off the balance each month. If you use the card for everyday spending, set aside enough money to pay the balance. - Avoid making too many applications
Too many applications in a short space of time can count against you, so don’t apply for a card too often and only apply after you’ve checked your eligibility. - Stick to your lender’s terms
All credit cards will come with terms & conditions so it’s really important that you stick to these terms. That means don’t spend more than your agreed credit limit, and always make sure you pay at least the minimum amount on time, every month.
Using your new credit builder card
Using your card is easy, but to get the most out of it, a couple of simple things are always worth remembering.
- Make your payments on time
This is really important, because late or missed payments will damage your overall credit file. Don’t worry, setting up an automatic payment instruction like a Direct Debit or Standing Order will help make sure you never miss a payment. Why not use the simple Vanquis App to keep on top of your payments? - Pay more than the minimum amount
If you can afford it, it’s a great idea to pay more than just the minimum amount on your balance each month. That’s because the more you can pay off each month, the less you’ll need to pay in interest. If you can pay the full amount each month, that’s even better – in fact, it’s perfect. - Charges for withdrawing cash or using your card abroad
Credit builder cards aren’t designed for making cash withdrawals, or for using when you’re abroad. If you do use your card for these things, you’re likely to be charged a higher interest rate or an extra fee. For this reason, we strongly recommend that you read all of your card’s terms and conditions before you use it.
