Credit Builder Cards Explained

Credit builder cards are a specific category of credit cards designed to help you build credit. Are they worth your time and money? Find out more.
Credit builder cards are a specific category of credit cards designed to help you build credit. Are they worth your time and money? Find out here!

Credit builder cards offer another way of building credit for those who have bad or no credit. But are they worth it for you and your financial situation? In this post we will cover everything you need to know about credit builder cards and explain how they are used for credit-building.

What is a Credit Builder Card?

Credit builder cards are exactly what they sound like - a credit card for people with poor or no credit who want to improve their credit score. These cards are also known as ‘bad credit’ credit cards and they typically carry low credit limits and higher-than-average interest rates.

Your credit score is essentially a lenders’ way of assessing your financial stability and trustworthiness. Having a good credit score is very important if you ever plan on making a major purchase in life—buying a house,  renting a flat, getting a car loan, or even buying a smartphone. Using a credit builder card is one of many ways you can build your score up over time.

How Does a Credit Builder Card Work?

Once you make the decision to apply for a credit builder card, you might notice a brief dip in your credit score. However, as time passes, managing your credit builder card responsibly can help you build a positive credit history.

If you make all of your repayments in full and on time, and don’t overspend the credit limit, your record will start to look more reliable and trustworthy to lenders. As a result, you should see your credit score go up, and you may be able to access a higher credit limit.

If you want to build your credit score without getting into debt or paying high interest rates check out Pave’s credit builder.

A Word of Caution for Credit Builder Cards:

The low credit limits and high APR (Annual Percentage Rate) interest rates can play against your favor, so it’s important to be careful when using credit builder cards. A high APR means you'll end up paying more interest on outstanding balances, so it’s of utmost importance to pay off your card in full each month. Another area to focus on is the low credit limit. The amount of your total credit limit that you use can affect your credit score. It’s best practice to try to stay under 25-30% of your limit – for example, if you have a £1,000 limit on a card, it’s best not to use more than £250 at any one time.

Check out: Credit Builder Card Alternatives

Here’s a checklist for how to properly manage a credit builder card:

  • Avoid late payments, most credit card companies will charge a fee and some may even reduce your credit limit.
  • Submit timely repayments and pay credit cards off in full every month to avoid paying interest and going into debt for longer.
  • Make sure to always at least make the minimum repayment if you can’t pay the statement in full. Missing payments can bring serious harm to your credit score.
  • Consider setting up direct debits to ensure you make monthly repayments on time.
  • Get text or email alerts and sign up for mobile banking so you never miss a payment.

How to Pick the Best Credit Building Credit Card:

  • Make sure you’re eligible: Hard checks can cause your credit score to dip so a good way to avoid them is to use an eligibility checker to see a range of different credit cards that you might gain approval for. This allows you to consider all of your options before you actually make an application and take out a hard inquiry.
  • Don’t apply for several cards at once: Consider checking your credit score from an agency like Experian before applying to credit cards. It’s never a good idea to apply for too much credit in a short space of time especially when you don’t know your credit.
  • Take a look at Interest rates and fees: The interest rates on credit-builder credit cards are almost always much higher than normal credit cards, but providers do offer differing rates, so be sure to do research and shop around.
  • Check the card benefits: Some cards offer rewards and benefits such as access to in-app banking or 24-hour customer service.  These benefits are often much more basic than traditional  credit cards. Choose the card that prioritises your goals for using a credit-builder credit card.

Other Credit Builder Options - Build Credit the Proper Way.

Pave helps you build credit over time without risking missed payments and falling further into debt. Pave is proper path to good credit.