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Credit Building Cards FAQ
For people with limited credit histories or bad scores, getting credit can be tricky. Whenever you apply for a credit card or loan, your lender will look at your credit history and your credit score to determine how much of a risk you'll be as a customer. If you've had debt problems in the past, county courts judgements (CCJs), or other financial issues, then your best bet may be to use a 'credit building' card designed to help you turn your score around.
Credit builder cards allow newcomers to the credit card market, and low-score individuals to improve their credit score. However, the amount of credit you are given may be less than with a standard card while the interest rate is much higher - which is why it's so important to use these cards carefully.
Can I be accepted for a credit builder card with bad credit?
Easier accessibility for those struggling with their credit rating or credit history is perhaps the biggest advantage of getting a credit builder card. Whether you've damaged your credit score with unpaid debts, or you simply need to build up a credit history, a credit builder card could be an easy way to get started.
What kind of credit limit can I get?
The downside of many credit builder cards is that they don't come with a huge credit limit. However, this isn't always a bad thing for people who've suffered from debt issues in the past. It's more important to remember that credit builder cards often have higher interest rates which make paying off your balance in full each month essential.
How can I make repayments on a credit builder card?
Financial experts recommend setting up a direct debit to ensure you never miss a credit card payment or have to pay interest. With credit builder cards, it's an especially good idea to avoid over-spending so that you can more effectively improve your credit rating for the future, and therefore enhance your chances of being accepted for some of the top cards on the market. In some cases, credit building cards also come with deals that allow you to reduce your APR or increase your credit limit so long as you make all of your repayments on time.
Will I need to make minimum payments?
The most important factor to be aware of when using a credit builder card, is that if you don't play by the rules and make payments on time, you will put your credit score at risk even further. It is important to make at least the minimum payments each month, otherwise, you could end up with additional damage to your credit score, as well as hefty late fees to worry about.
How high are credit builder card interest rates?
Some credit building cards have interest rates as high as 30%, or even 50%. For some people, the threat of excess interest charges can be positive as it forces them to control their spending. However, if you have trouble sticking to your limits, a credit builder card may not be the right choice for you.
What should I do if I'm rejected?
If your application for a credit builder card is rejected, avoid re-applying for a number of different cards, as frequent applications can damage your credit record further. Instead, try to focus on finding a card that does work for your circumstances. Remember, if all of your matches include sky-high interest rates, then you might be better served by looking at alternatives or talking to a financial adviser.
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Helpful links for credit card issues
Money Advice Service - The government's Money Advice Service website provides concise, unbiased information on choosing and using credit cards as well as handy tools such as credit card calculators.
The UK Cards Association - The British trade association for card payment companies has an extensive range of guides on their website covering all the types of payment cards available to UK consumers including debt, credit and prepaid cards
Financial Fraud Action (FFA) UK - The Financial Fraud Action website features important advice on using payment cards safely and securely as well as information on the latest scams.
Financial Ombudsman Service - If you've already made a complaint to your card provider and have not had your issue resolved satisfactorily then the next step is to take up your complaint with the Financial Ombudsman.