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Credit-building credit cards can be a useful option for those with a poor or limited credit history, though they typically come at a higher cost. Because lenders take on more risk when offering credit to someone with a limited credit history, they usually charge a higher interest rate to offset this. Interest rates vary between providers, so it's worth comparing your options to find a rate you're likely to be accepted for, based on your credit score.
A credit builder card is a credit card aimed at people with a limited, poor, or damaged credit history who want to improve their credit score over time. Providers typically accept applicants who'd be turned down for a standard credit card, though this usually comes with a lower credit limit and a higher interest rate to reflect the risk. They're not designed for cheap borrowing or rewards, the point is to use the card responsibly which can help demonstrate a history of responsible borrowing to lenders in future.
A credit builder card works like any other credit card: you're given a credit limit, you spend up to it, and you make at least the minimum repayment each month. The difference is what it's designed to do for you. Because the provider reports your repayment behaviour to the credit reference agencies (Experian, Equifax and TransUnion) paying on time and keeping your balance well below your limit is one of several factors that can gradually improve your credit score - missing payments has the opposite effect. It's worth remembering that no single behaviour will transform your score on its own; it's built up over time through a combination of factors, including your repayment history across all your accounts, how much of your available credit you're using, and how long you've held credit for.
As a general rule of thumb, try to keep your spending below around a quarter of your available credit limit and clear the balance in full each month if you can, to avoid paying interest while you build your record.
Although credit building credit cards are designed with those who have a poor credit rating in mind, not all applicants will be accepted. There are many factors that dictate whether or not you will be able to get a credit building credit card, like your income and the current state of your finances. If you are turned down however, be aware that there are many providers and they may be one who will be willing to accept your application; but at the same time also be aware that getting turned down from some providers can have a negative effect on your credit rating, making it more difficult for you to borrow in the future.
Gives you the opportunity to build a positive credit history, which is ideal for those who have either had problems repaying debt in the past or those who have not yet had the chance to demonstrate that they are reliable and fully capable of paying back their debts
Some cards will come with the opportunity to achieve rewards if you are able to keep up with your repayments as an added incentive.
Because they are designed for people with limited or poor credit history, credit building credit cards usually have a lower spending limit, meaning they cannot be used to purchase very expensive items.
Credit builder cards can have higher interest rates than some standard credit cards. However, after consistently paying off the credit you owe, you may improve your chances of qualifying for other products.
Being on the electoral register can help improve your credit score, as lenders often use it to verify your current and past addresses. Your local council can add you if you're not already on it.
It's also worth ordering your credit report, since lenders use this to assess your eligibility - checking it lets you make sure everything on there is correct. If you do spot a mistake, contact the relevant credit reference agency and explain what's wrong; they'll look into it and correct it if needed. You can also add a short statement to your file explaining any past problems, so lenders have some context when they review your application.
Finally, paying off any outstanding debts will show up on your credit history. Clearing credit card balances reduces the debt lenders see against you, which can work in your favour. A County Court Judgement (CCJ) works differently: if you pay it off within a month of the judgement, you can apply to have it removed from the register entirely; if you pay later, it will be marked as 'satisfied' but will still show on your file for six years from the judgement date. A satisfied CCJ is generally viewed more favourably than an unpaid one, though it may still affect lending decisions.
Prepaid cards and credit builder cards are sometimes confused, but they work differently. A prepaid card only lets you spend money you've already loaded onto it - it isn't a form of borrowing, so on its own it won't build your credit score. A credit builder card is a genuine line of credit reported to the credit reference agencies, which is what allows responsible use of it to improve your score over time. If you're specifically trying to build credit history, a credit builder card is the more direct route; read our guide to prepaid cards if you'd rather manage your spending without taking on credit.
Money Expert has been helping people compare and save since 2003. We show you credit cards from a range of UK providers, so you can compare features and apply for the card that suits you.
