Credit Building Credit Cards Explained

Improve your credit rating with a specialist card.

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By Cai Bradley
Updated on Thursday 17 August 2023

Man happy using his credit builder card on laptop

Credit building cards can be a useful starting point for those with a poor credit score or no credit history at all, but there are some things you should know about them first.

Here, we explain how credit builder credit cards work in the UK, how you should use them, and why they can improve your credit rating.

Check your score with Checkmyfile - Sign up now for a 30-day free trial and cancel anytime (there is a £14.99 monthly fee after the trial):

What is a credit builder card?

A ‘credit building credit card’ is a specialist type of credit card designed to help those with a poor credit score (or no credit history at all) improve their rating and build a credit record.

These credit builder cards can be particularly useful under a variety of circumstances, including if:

  • Your credit score is poor and needs improving
  • You have not yet built up a credit history
  • You have recently been refused credit
  • Your income or employment status means that you don’t qualify for the credit card you want

Can you get credit builder cards for bad credit? Yes, you can, as credit builder credit cards are designed to help those with bad credit scores or no credit history at all.

How do credit builder cards work in the UK?

Credit building cards work similarly to standard credit cards, but they have a few distinct features.

As people who take out a credit builder credit card are generally more high-risk as they either have a poor credit rating or no credit history at all, lenders must take some precautions. In order to reduce the risk of losing money if you can’t make repayments, credit builder cards will usually have low credit limits and a high annual percentage rate (APR).

The high APR means that you will be required to pay a significant amount of interest if you don’t make repayments in full each month.

Credit builder cards are unlikely to include some of the perks that other credit cards offer, such as cashback, rewards or a 0% promotional rate on purchases.

But how should you use your credit builder card and how does it build your credit score?

How to use a credit builder card

You should use your credit builder credit card sensibly, just as you would with a standard card. The best way to use a credit card to build your credit history is by spending ‘little and often’ on it, and (of course) making repayments on time and in full each month to avoid hefty interest fees.

For example, you could use your credit builder card to pay for fuel or groceries – regular expenses that you should be able to repay easily each month.

Here are some tips to help you manage your credit builder card efficiently:

  • Never borrow more than you can afford to repay
  • Pay the balance in full each month to avoid interest charges
  • If you can’t pay the full balance, make sure you pay the minimum repayment at the very least
  • Don’t use more than 30% of your credit limit
  • Set up a direct debit to make the repayment as soon as it is due
  • Arrange alerts (via text or email) to remind you when your next payment is due

If you can only pay the minimum payment, remember that you will be charged interest on top of the remaining amount, so you’ll end up repaying more money than what you’ve actually borrowed. This is why we recommend paying off your balance in full every month to avoid paying interest.

How does a credit card improve your credit score?

When you take out a credit builder card – or any form of credit – your credit rating may drop initially. This is usually a temporary decrease, however, and, as long as you use your credit builder card responsibly, it should begin to improve your credit score over time.

If you use a credit card sensibly, by making repayments on time and in full and staying within your credit limit, you will start to build up evidence which shows that you are a reliable borrower and your credit score will begin to improve as a result.

How much of your credit limit you should use (also referred to as your credit utilisation rate) varies, but it is generally recommended that you should use no more than 20% or 30% of your limit. This is the optimum figure for improving your credit score – if you exceed 30%, you could damage your rating.

Read more: How to Build Your Credit Score with a Credit Card

Do you need a credit card to build a credit history?

There are many ways to improve your credit score and build a credit history, and using a credit card is just one method of doing so.

Some of the other ways to show lenders and creditors that you are a reliable borrower include paying utility bills on time or taking out a mobile phone contract.

As long as you make sure that you make repayments on time and in full, your credit file will start to look more impressive and lenders will begin to trust you.

Remember: You should start building a credit history from a young age if you can, but if you haven’t been able to do so yet, a credit builder credit card is a good place to start.

The best credit builder cards

Many credit card providers will offer credit builder cards, so it is worth doing your own research and comparing deals to find the most suitable one for you. Some of the best options in the UK include:

  • Chrome Credit Card

  • Vanquis Bank Ltd Classic Credit Card

  • Origin Credit Card

  • Tesco Foundation Credit Card

  • HSBC Classic Credit Card

Check your credit score

Before you decide to take out a credit builder card, it’s always worth getting a multi-agency credit report to check if you need to improve your creditworthiness first.

If you don’t do this and the lender rejects your application, this will have a negative impact on your credit score, meaning that you’ll be worse-off and you won’t be able to secure the best deals.

The best way to check your score is to sign up to Checkmyfile with its 30-day free trial, where you can see the information held on you by four of the main credit reference agencies in the UK (Experian, Equifax, TransUnion and Crediva). This helps you see what lenders can see when they check your credit history and you can identify any errors on your report that may be holding you back from improving your rating.

Checkmyfile costs £14.99 per month once the free trial ends, but you are able to cancel anytime if you decide you don’t want to continue using it.

As you try to improve your credit score and build a reliable picture of yourself as a borrower, it’s important that you check your credit report regularly for any changes or potential mistakes that could be damaging your rating.

Your credit report shows you how you are viewed through the eyes of lenders and creditors, so be sure to make full use of it.

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