A credit building card could be just what you need if you’re struggling to get credit – here’s what you should know about this type of credit card.

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What is a credit building card?

If your credit score isn’t so great, a credit building card can be a good way of building it up. Or if you’ve never had a credit card and have no history of borrowing, then this type of entry-level card could be for you.

 

As with all credit cards, a credit builder card has a maximum spend limit. However, the limit is typically lower than most other cards – usually £100 to £1,500. Depending on the terms and conditions set out in your card agreement, your limit could be increased as you prove you can spend responsibly, but this depends on how you manage your account. 

What is my credit score and why is it so important?

Your credit score is important because it can influence the outcome of other finance applications you might make, such as loans and mortgages, car financing, rental agreements and even mobile phone contracts.

 

When you apply for credit, you’ll be asked lots of questions relating to your income and employment, for example. The prospective lender will also consider your credit report (or history), detailing all the credit you’ve had or applied for in the past.

 

Together, this data gives an insight into your personal finances and provides lenders with an all-round idea of how you manage your money. On the basis of this, you’ll be given a score (or rating) that shows how credit-worthy you are. The higher your score, the more likely it is that you’ll be given credit on favourable terms.   

Why might I be refused credit?

There are lots of reasons why you might be refused credit. It could be that you have no history of credit, have never borrowed or even had an overdraft. If that’s the case, then lenders have no idea whether or not you’d be a good risk and will pay back what you owe.

 

Credit checks also highlight any problems you may have had in the past with paying back debt. To a potential lender, this might serve as a red flag and they may refuse to accept your application. Checks will also show whether you have any County Court Judgements (CCJs) against you, have ever been declared bankrupt or if you’ve committed any fraudulent offences.

 

While it might seem unfair to judge you on how you managed your finances in the past, money lenders understandably want customers that pay back their debts.

Can I check my credit report?

There are three main agencies in the UK: Experian, Equifax and Callcredit. They’re responsible for compiling all the information about how you manage your money, although it’s worth noting that not all of them will hold exactly the same information about you.

If you’ve been refused credit, you can ask why and find out which credit reference agency (CRA) was used. You can also check your credit report to see if it’s correct. You might find there’s a genuine error on your report or the refusal could be down to something simple like your address being wrong.

What are the pros and cons of a credit building card?

If you’ve been rejected for credit before, then a credit building card might be the only card option available to you.

 

But this type of card is also good if you’ve never had credit before. Because of the low spend limit, they’re a good way of easing into credit card usage as you can’t rack up thousands of pounds worth of debt over a short period.

 

However, the low spend limit is also a disadvantage, as are the high interest rates that usually come with a credit building card. Nevertheless, if you manage your account and pay back each month in full, then you won’t face interest rates and you could see your spend limit gradually increased. 

What should I consider when choosing a credit building card?

Highlights that you might want to consider include being able to manage your credit account online, or via a mobile app. Some card providers also offer text messaging services or email alerts to let you know when payments need to be made or when a new statement can be viewed, both of which can help you to keep on top of your finances.

 

If you’ve been caught out in the past and have been the victim of fraud, which, in turn, made getting credit difficult, look out for dedicated fraud monitoring for peace of mind.

 

Some credit lenders will also let you run a ‘soft’ credit check before you actually apply for a card. This is a good way of making sure that you’ll be accepted before you submit a formal application. It’s worth considering because every time you apply for credit it will show up on your credit history. If lenders can see you’ve applied for lots of credit or had credit refused, then it could make them think twice about lending to you.

How can I find a credit building card that’s right for me?

That’s where we can help. We’ve teamed up with Lovemoney Financial Services Ltd to show you the key features of each card, so you can compare at a glance. If you like the look of one, then simply click on the details and you’ll find more information. So, don’t worry if you’ve been frustrated by not being able to get credit in the past, stay positive and start afresh with a credit building card – start searching today.

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