Credit builder cards

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What are credit-builder cards?

They’re a type of credit card for people who want to either build up a credit history or improve their current credit rating.

Having a good credit score is important if you want access to financial products such as mortgages, loans and credit cards, especially those with the most attractive interest rates and rewards.

If your credit score has been damaged, or you don’t have a history of borrowing for credit reference agencies to consider, a credit builder card can help to demonstrate your reliability as a borrower, improving your credit score as a result.

Who are credit builder cards for?

These kind of cards are aimed at:

People with bad credit

If you have a history of missed payments or of running up debts in the past, your credit score will have taken a hit.

With a poor credit history, you might struggle to get accepted for a mainstream credit card. A credit-builder card is designed to be more accessible for people who’ve had financial problems in the past.

As long as you borrow responsibly and pay at least the minimum amount on time every month, using a credit-builder card can have a positive effect on your credit score.

People with no credit history

If you’ve never taken out any form of credit before - perhaps you’ve just turned eighteen, or maybe you’ve recently moved to the UK - it can be difficult to get accepted for any form of credit. With no credit history, lenders can’t judge whether or not you’re a safe bet to lend to.

Using a credit builder card sensibly, keeping up with repayments and staying within your limit, can work towards building up your credit score. This will in turn reassure lenders that you’re a trustworthy borrower, so you’re more likely to get accepted for good, competitive credit deals in the future.

How do credit builder cards work and improve your credit record?

These cards typically offer a lower credit limit - and higher interest rate - than cards that are available to people with healthier credit scores.

  • If you spend small amounts on the card and pay off what you owe every month, it shows lenders you can manage debt responsibly and reliably pay back money you borrow. This goes towards building up your credit score, typically within around six months of use.
  • Try to avoid using all of the credit available to you each month. Maxing the card out to its limit can affect your credit utilisation ratio, which impacts your credit score. In fact, it’s a good idea to keep spending to below 50% of your credit limit (and ideally no more than 25%). Aim to see the card as a way of improving your credit score rather than as a way to borrow money.
  • Pay your balance in full every month to avoid expensive interest. If you can’t pay off the full balance, then at least make the minimum repayment. Any missed payments can have a negative impact on your credit score and leave your credit rating worse than before.

Advantages of credit builder cards

  • Less strict eligibility criteria means people with a low credit score are more likely to be approved.
  • They’re designed to encourage sensible borrowing practices and give you the opportunity to show good credit behaviour, which can improve your credit rating.
  • Using one can be seen as a stepping stone. As your credit score builds, you’re more likely to be accepted for the most favourable credit deals on the market.

Disadvantages of credit builder cards

  • Credit limits are low, though these can often be increased if you handle your card sensibly.
  • Interest rates are high. If you don’t pay off your balance in full, you’ll be hit with high fees.
  • Missing a payment can damage the credit score you’re supposed to be building.
  • Withdrawing cash comes with a fee, plus high rates of interest on the borrowed cash until it’s paid off.
  • Most cards don’t come with bonus features - such as long 0% interest periods - that other cards offer to encourage take-up.

Alternatives to credit builder cards

If you don’t like the idea of taking out a credit card - or if you can’t get approved for a credit building card, you can look at other ways to build your credit score.

These can include:

  • Ensuring you’re registered on the electoral roll. This is a simple way of boosting your score as it shows you’re in a stable position.
  • Making sure that your name is included on any shared utility accounts. If you aren’t listed, any positive credit behaviour associated with these accounts won’t count towards your credit score.

Will I be eligible for a credit-builder card?

These sorts of cards are designed for people with a limited, or low, credit history, so you have a better chance of being accepted.

However, if you’ve been declined, don’t keep applying for more cards in a short space of time. Every application - and rejection - for credit impacts your credit file. Try to leave a space of at least three months between applications.

It’s best to run a soft check to see your chances of being accepted before you apply.

How to compare credit cards with us

Our smart search tool allows you to make a soft search for a credit builder card before you proceed with an official application.

This kind of soft search will show you the cards you're likely to qualify for and won't have an impact on your credit history.

Just fill in your details and you'll be shown your chances of acceptance as a percentage for each card.

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Frequently asked questions

Most credit cards specify a minimum income requirement. But some specialist lenders do offer credit builder cards for people on a low income, in receipt of benefits or who are unemployed.

Demonstrating responsible borrowing behaviour using a credit builder card can improve your credit score within several months.

For an instant boost to your score, credit reference agency Experian offers the Experian Boost tool. You need to set up an account with Experian which then connects to your current account and scans it for payments and subscriptions that can boost your credit score.

Regular payments into savings, such as an ISA or monthly saver accounts, Council Tax payments and even digital subscriptions such as Netflix and Spotify, paid regularly and on time, can all indicate that you manage your money well and so can go towards boosting your Experian credit score.

Any missed or late repayments can damage your credit score and, depending on the terms and conditions of your card, you could be charged a late fee.

It’s a good idea to set up a monthly direct debit to pay your card off in full - or at the very least, the minimum amount, to ensure you don’t miss a payment.

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