Credit Builder Card Alternatives, Tips & Tricks
Credit builder cards are credit cards designed for people with no credit or poor credit, who want to raise their credit score.
Your credit score is a lenders’ way of assessing your financial stability when deciding if you qualify for a loan or credit line.
Are There Any Disadvantages of Using a Credit Builder Card?
Yes. The truth about credit builder cards is that they carry higher-than-average annual percentage rates (APR) and lower credit limits. This means that you’ll only be able to borrow small sums of money at one time and will end up paying more interest on the money you do borrow. The low credit limit can be a positive thing and is intended to stop people from racking up large debts that they can’t afford to pay back.
Another downside is that a credit builder card is still a credit card. If you miss making repayments on time or spend more than you can afford to pay back, you will end up paying an expensive bill on top of what you already owe.
Credit Builder Cards Alternatives
Building credit is typically a slow process so it’s important to evaluate all of your options on your journey to financial freedom. Here are a few to consider:
- Get a credit builder loan. After you’re approved for a credit builder loan, a lender puts an agreed amount of money into a lender held bank account that you cannot access until the loan and interest are repaid. This account is for the sole purpose of building credit and can’t be used to make purchases. You then make regularly scheduled repayments at a fixed amount over a certain period of time, usually six to 24 months. The regular repayments are then reported to credit reporting agencies resulting in a credit score lift over time. The best part about a credit builder loan is that the lender will return the total balance (sometimes including the interest paid) at the end of the term.
- Look into credit builder apps. Pave helps their members build credit without going into debt. They help build your credit score by reporting your monthly membership fee and loan repayments to Experian. The membership fees are on a 12 month contract and build positive repayment history. Positive repayment history is one of the largest factors that decides your credit score and users have seen scores increase by 100 points in three months.
- Look into prepaid card options. Prepaid cards require funds to be preloaded or topped up making them a great option for those on a budget. They also don't require a credit check and are a good option for people with a poor credit score or no credit history. Many prepaid card providers allow for a ‘credit builder’ service to be added to help improve your credit rating. Make sure to ask providers and do your research when choosing this option!
- Report your rent payments to credit agencies. CreditLadder allows you to report your rent payments to the UK’s two biggest credit agencies, Experian and Equifax. If you are already making rent payments for a flat then you may as well leverage those on-time payments to boost your credit score! A quick reminder that payment history is one of the largest factors impacting your credit score.
Other Important Ways to Build Your Credit Score
In addition to the credit builder card alternatives listed above, it’s important to make sure that you don’t have items on your credit history that may be dragging your score down.
- Fix any errors on your credit report. You can check your credit report using Pave's Credit Spotlight tool. It’s always a good idea to download a free copy of your credit report and examine it carefully. You may find a negative marker on there such as a loan, CCJ or IVA that had nothing to do with you. Mistakes happen and markers sometimes show up on credit reports in error. Be sure to correct any errors on your credit report so it accurately reflects your financial situation and your score doesn’t suffer.
- Budget carefully and pay off credit card debts. If you have multiple credit cards with outstanding balances it’s best to stop using them as much as possible and focus on paying off the debt. There are multiple debt repayment options you can use.
- Pay your bills on time. As we mentioned above, having a consistent and reliable payment history is arguably the most important component making up your credit score. If you can’t manage repayments of your bills all at once, call the companies you owe money to and ask if they can change due dates to spread payments out and make them more manageable.
- Get on the electoral roll. Registering to vote on the electoral roll raises your credit score because it helps lenders confirm your identity. This is one of the quickest and easiest ways to give your credit score a lift.
Boost Your Credit Score with Pave Credit Boost
The Pave app credit builder actively works with you to help you build your credit score. We offer credit building insights that are targeted, actionable and unique to you, and report your good behaviour to help build your credit health. We partner with Experian, Equifax and TransUnion to improve your credit history through your monthly membership fee of £9/month. There's no magic bullet to improve your credit score overnight but Pave credit builder builds credit the proper way.
Pave has been voted the Best Credit Building Product in 2021 by customers in the Consumer Credit Awards and was voted the Best New Personal Finance App 2021 by Moneynet.