Choosing which credit-builder card to apply for when you have bad credit is an important decision. There are dozens of credit card providers in the UK and it is not always obvious which are the best and - vitally for those with impaired credit - which are likely to accept your application. In this article, we review the main credit card providers for people with poor credit, based on cost, customer service, introductory offers and how easy it is to manage your card.
Do you need a credit-builder credit card?
The term "credit-builder" is now used to mean any card that someone with a poor credit history is likely to be accepted for. It is, however, misleading as any form of borrowing, when used responsibly, can be used to improve your credit rating. When opting for a "credit-builder" credit card, you will pay a higher APR for the privilege. While the card may offer extra features to, for example, help you remember to make payments on time, you need to consider whether it is worth the extra cost and, indeed, if you really need to take out a credit card in the first place. Later in the article, we provide you with two ways you can boost your credit rating without taking out a credit card.
How to judge which is the best credit card provider for bad credit
It is always a good idea to shop around when choosing the best credit card to suit you. Look beyond the introductory offers available and pay close attention to each credit card's APR. You should also look at other factors, including the level of service you are likely to receive from the credit card provider. Here are some of the key questions you should be asking when looking for your ideal credit-builder credit card provider:
What are the costs?
The issue of cost falls into two parts: the amount you will pay in interest and any additional charges. In terms of the interest rate, you can expect to pay a significantly higher APR on a card aimed at those with impaired credit compared to someone with a good credit history. This makes it imperative to search for the most competitive rate to ensure you don't end up overpaying. You also need to consider the fact that you may not be offered the headline APR that's advertised for the card. Indeed, the rate you actually end up getting is likely to be linked to your specific circumstances, so if you have a poor credit history, you may well be offered a significantly higher rate.
While the APR is important, you should also consider other charges that could be levied on the card. These could include an annual fee, transfer fees if you move a balance from an existing credit or store card, charges for using the card abroad and, of course, penalties if you are late making a payment. All of these charges can play a big part in determining how much having the credit card is going to cost.
What types of cards are available?
There are two options when looking for a poor-credit credit card provider: a specialist provider with a range of options aimed at those with less-than-perfect credit history or mainstream providers that have one or more "credit-builder" options. Some of the specialist providers have a feature on their websites that, by asking you a few questions and running a soft search on your credit file, can guide you towards the best options they have available for you. There are often balance transfer, money transfer or purchase cards available within the range, which you can choose between based on how you are planning to use the card.
For mainstream providers with fewer options for those with poor credit, the benefit often comes in the form of access to rewards and offers, including, for example, the opportunity to earn vouchers or reward points, discounts at retailers or access to tickets for exclusive events. It is rare for specialist providers to offer these types of perks. There is also a general trend that many of the mainstream providers have a better customer service record than specialist lenders, although this isn't always the case.
What is the customer service like?
A key factor in choosing between different credit card companies is comparing what level of customer service they offer. This includes how easy they make the sign-up process, how well they assess your suitability for the card you're applying for, the speed at which they process your application and how well they respond if you encounter any problems, including if you find yourself in a position where you are struggling to repay your debt.
The experience current and previous customers have had - both positive and negative - is a good gauge of what you can expect. In this instance, looking at reviews and consulting services like Trustpilot can give you good insight into how much the company values its customers and how well it services their needs.
How easy is it to manage your account?
If you are planning to use your credit card as a way of improving your credit rating across the main credit reference agencies, it is helpful to have tools and features that allow you to monitor and manage spending and payments efficiently. When you are choosing which provider to go with, consider whether they have a mobile app that will allow you to manage your account on the go, as well as additional features such as sending text and email reminders when you need to make a payment or are reaching your credit limit.
What credit limit is available?
As with APR, you may not always be given the full credit limit advertised for the card. Again, it can be determined by your specific situation, with those with worse credit history being offered a lower limit than those who only have minor impairments to their credit record. Often cards aimed at those with little credit history - students, for example - will only be offered a few hundred pounds limit initially, although that usually increases over time.
A feature from some specialist providers is to allow you to "earn" a higher credit limit and reduced APR by demonstrating you can make the repayments on time. It offers a way to build good habits around servicing your debt while making the card cheaper to use and with the greater flexibility provided by a higher credit limit.
Which are the best credit card providers for people with poor credit?
Having looked at the range of options currently available, we have chosen the top-three specialist providers for bad-credit credit cards. They have been selected on the basis of their size and popularity, the options they offer to consumers and the additional tools and services they provide. With all of these providers, costs are higher than you would expect from a more mainstream provider aimed at those with near-perfect credit scores.
Capital One is one of the biggest credit card providers in the UK and is characterised by its focus on those with less-than-perfect credit history. It has balance transfer and credit-builder options that prove popular in spite of the relatively high APR compared with what is available for those with better credit ratings. It has secured a number of awards, including being the only credit card provider with a 4-star rating from Fairbanking.
Advantages of Capital One
- It has an easy-to-use eligibility checker - QuickCheck - which checks whether you will be accepted for the card without leaving a "hard" check on your credit record. If you pass the check, which takes 60 seconds once you have completed the form, Capital One says you are guaranteed to be accepted when you complete the full application.
- It is one of only a handful of providers that promises to honour the APR it offers you. This means, unlike with some other cards, you don't run the risk of being given a higher APR dependent on your circumstances.
- Customers can set up free text and email reminders when their statements are ready to view and when payments are due to minimise the risk of missing payments or over-stretching the credit limit.
- There is a mobile banking app that also makes it easy to manage the card
Disadvantages of Capital One
- Although Capital One frequently refers to its excellent customer service record, with a number of industry awards to back this up, its reviews on Trustpilot are not very complimentary. In fact, it scored just 3.7 out of 5 based on the views of just over 1,300 people, with 52% of people labelling it "bad". The main criticism seems to be around credit limits not being increased, even when the customer has an excellent record of making payments on time. There are also numerous claims that people have passed the eligibility check but have then later been declined for the card, although we have been unable to verify if this is the case.
- While it offers extra tools and features, there aren't any additional perks or rewards, such as the ability to collect reward points or to secure discounts.
Should I get a credit card from Capital One?
With a representative APR of 34.9% variable for both the Capital One Classic card and Capital One Balance Transfer card, it sits in the middle of its peer group in terms of cost. While there are a few cheaper options out there for those with poor credit, there are also deals that have eye-watering APRs from other providers. Meanwhile, with 56-days interest free on purchases if you pay off the balance in full each month, as well as 6 months interest free on balance and money transfers for the Balance Transfer card, it's easy to see how it could be used to improve someone's credit rating, if used responsibly. This is further helped by the support Capital One provides with its payment reminders and mobile app.
The main feature of Vanquis Bank's range of credit cards is the way that, although the initial credit limit given to new customers is low (from as little as £150 up to a maximum of £1,500), it is reviewed every five months and can increase up to a maximum of £4,000. The rationale, presumably, is that it incentivises people to make their payments on time and use the card sensibly in order to qualify for these regular hikes. However, this feature comes at a price: the representative APR on the cards is typically between 29.95% to 39.9%.
Advantages of Vanquis Bank
- It has excellent reviews, with 82% of over 28,000 people on Trustpilot rating it as "excellent". Overall, it scored 4.4 out of 5. There is specific praise for the simplicity of the application process and good levels of customer service. Vanquis emphasises the fact it has a UK-based customer service operation with long opening times.
- The capacity to increase your credit limit gradually over time may motivate some customers to act more responsibly when it comes to paying off the monthly balance. This is supported by the capacity to set up text alerts when payment is due.
- Like Capital One, Vanquis has a mobile banking app that makes it easy for customers to manage their accounts
- There is also an online eligibility checker which gives you a good idea of whether you are likely to be accepted for the card before completing the full application.
Disadvantages of Vanquis Bank
- The amount you pay in interest - as high as 39.9% representative APR variable - means it can work out expensive if you don't pay off the balance in full each month. Although the credit limit is kept low to minimise the risk, it is easy to see how someone could soon find themselves in difficulty if they only make the minimum monthly repayment and start to accrue interest on the debt.
- Applicants may not be given the advertised APR, with up to 49% of those who apply potentially offered a higher rate, subject to status.
Should I get a credit card from Vanquis Bank?
If you'd like the opportunity to be able to secure a higher credit limit over time, Vanquis may be a good option for you, but only if you are going to be disciplined enough to pay the balance off in full each month to avoid being stung by the high interest rates. The overwhelmingly positive reviews are also reassuring, as well as the nice extras, such as the text reminders and mobile app.
Aqua is another major player in the bad-credit space, with a strategy of helping people build credit by lending in a responsible way. In other words, the credit limit is kept low - from £250 for the Aqua Classic card - while the interest rate is up to 37.9% representative APR variable. What sets it apart is the feature it offers on the Aqua Advance card that sees the interest rate drop every year over three years, as long as the customer is staying within their credit limit and making payments on time. There is also free access to "CreditView", which is Aqua's portal to view your TransUnion credit report, as well as guides on how to improve your credit score on the report.
Advantages of Aqua
- Aqua takes a proactive approach to customer service, linking to its Trustpilot review from the homepage on its website and writing responses to many of the individual reviews. Overall, it has a rating of 3.9 out of 5 from just over 7,800 reviews, with 64% ranking it "excellent".
- It goes a step further than many of its competitors in terms of tools to help people build their credit, including access to the TransUnion credit report and the "Aqua Coach" feature, which helps identify ways to be better at managing your debt. This is housed within the Aqua app, which allows customers to manage their accounts easily.
- The feature of reducing the APR over time seems a sensible way of encouraging people to use their card responsibly, building good habits and, over time, reducing costs. Of course the costs are relatively high in the first place and, arguably, over a three year period of demonstrating you can use a credit card sensibly, your credit rating may have improved enough to qualify for a more mainstream card at a substantially lower rate anyway.
- With the Aqua Advance card there is no foreign exchange charge when using it abroad, which makes it a good option for regular travellers.
- As with Capital One and Vanquis Bank, Aqua has an online eligibility checker , which will give you an idea of whether you are likely to be accepted before a hard search is carried out in the full application process.
Disadvantages of Aqua
- Aqua used to stand out by offering a rewards card that offered 0.5% cashback. However, this card was pulled in February 2020, which means it has lost one of its differentiating features and a nice perk for customers. As it stands, it also doesn't offer introductory offers on purchases, balance transfers or money transfers either, unlike some other providers within the space.
- You won't be eligible for the card if you already have - or have taken out in the past 12 months - a card issued by NewDay. This includes another Aqua card or one from Marbles, Fluid or Opus.
- If you don't pay off the balance in full each month, the high APR makes it an expensive card to use, particularly when compared with the sort of rates people with a better credit history can secure.
Alternative providers for people with bad credit
In addition to the providers listed above, there are also some good one-off credit-builder options from providers who are better known for their prime products. We have selected our top-two, based on key features, including cost, introductory offers and perks.
- Credit builder card: Barclaycard Forward
- Best for: Those looking to reduce costs over time. If you make payments on time and stick to your credit limit, you are guaranteed a 3% reduction on APR after the first year and another 2% the following year
- Representative APR: 33.9% variable
- Credit limit: £50-£1,200
- Introductory offers: Interest free on purchases for 3 months
- Perks: Access to discounts through Barclaycard Entertainment
For more information on this card, check out our full Barclaycard Forward credit card review.
- Credit builder card: Tesco Bank Foundation
- Best for: Those keen to collect Tesco Clubcard points linked to their spending
- Representative APR: 29.9% variable
- Credit limit: £200-£1,500
- Introductory offers: No introductory offers
- Perks: Three years' unlimited access to TansUnion credit report and ability to earn Tesco Clubcard points
For more information on this card, read our full Tesco Foundation credit card review.
For more credit card recommendations, check out our article "Compare the best credit cards if you have bad credit".
Alternatives to using a credit-builder card to improve your credit rating
LOQBOX* works by the customer committing to save between £20-£200 per month for a year. LOQBOX creates an interest-free loan for the total amount, which it locks away. The customer then makes the monthly payments by direct debit or debit card, which LOQBOX then reports to the three main credit reference agencies to demonstrate your capacity to service a loan and prove your credit-worthiness. At the end of the "loan", you receive your money back and, while you won't have earned interest, you will have improved your credit rating.
There is a full review in our article "LOQBOX Review - Should you use it to improve your credit score?"
Credit reference agency Experian has launched a service called Experian Boost, which offers people the opportunity to potentially improve their Experian credit score by showing "good habits" such as making regular payments into savings or investment accounts or paying for subscription services such as Amazon Prime and Netflix. It uses open banking to access information on your spending, which Experian uses to calculate any potential uplift in your credit score.
A full review can be found in our article "Experian Boost review - can it really help improve your credit score?"
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