Credit cards are a useful tool in managing your finances if used prudently. Remember though that building up credit card debt is very easy to do and can lead to financial hardship and even bankruptcy. A credit card is useful for managing cash flow and the ups and downs of your finances. Be careful not to use a credit card for impulse purchases as the debt can quickly build up. Always aim to pay off any credit card debt in full every month.
A credit building credit card is designed for people who do not qualify for mainstream credit cards or are trying to improve their credit score. A credit score, or rating, is a method lenders use to asses if you are a financially reliable person when you apply for a loan.
If you have a bad credit record then a credit building credit card may be a viable option to help you build up a creditworthy profile. Once you have built up a good credit record you may be able to apply for a mainstream credit card, loan or mortgage and take advantage of the better rates that are usually on offer.
Who are credit building credit cards for?
Credit building credit cards are designed for anybody who either has a bad credit record or has not been able to obtain a mainstream credit for any other reason.
An application for a mainstream credit card could be declined if you:
- have had debt problems in the past
- have been made bankrupt or had an Individual Voluntary Arrangement in the past six years
- have a County Court Judgement (CCJ) against your name in the past six years
- have unpaid bills in your name or jointly with someone else
- are not on the electoral roll
- have no history of borrowing or have never had a credit card
If you have been declined for a mainstream credit or fear you will be declined when applying, then a credit building credit card may be the right option for you.
How does a credit building credit card compare to a regular credit card?
Credit building credit cards have higher average percentage rates (APR) and lower credit limits than regular credit cards. You can avoid the higher interest charges by paying off any outstanding balance on your card every month. This will also help to build up your credit rating as it shows you are able to manage your finances.
Things to consider before applying for a credit card
Before you apply for any type of credit you should carefully consider your options and reasons for needing the credit. In an ideal world, we would survive without the need for credit but for larger purchases and to ease cashflow credit is often essential.
However, before you apply for any credit you should consider the following:
- what do you need the credit for, is it for a large purchase to help to spread payments over a period of time or is it just to buy something you could easily live without?
- do you understand the rate of interest charged on your loan or credit card?
- do you understand the level of monthly repayments to service the loan or credit card?
- can you defer buying items, allowing yourself time to save up which will enable you to pay cash rather than use credit?
The pros & cons of a credit building credit card
- allows access to credit that would otherwise be unavailable
- helps to repair poor credit rating due to previous debt
- good for people not on the electoral roll or for students living away from home
- higher monthly interest rate on the outstanding balance
- lower level of credit available than mainstream credit cards
- restricted choice of cards available
The best credit cards to rebuild credit - May 2021
Below we have compared the top four credit cards for rebuilding credit.
|Card||Credit Limit||Minimum Income||CCJ / Bankruptcies?||Benefits||APR%|
|Amazon Classic credit card||Minimum £500||£0||Not specified. Case-by-case basis||0% interest for 3 months plus £20 Amazon gift card||29.9%|
|Barclaycard Forward credit card||£50 - £1,200||£3,000 per annum||CCJ and Bankruptcies accepted if over 6 years old||0% on purchases for 3 months||33.9%|
|Capital One Classic Complete credit card||£200 - £1,500||£0||CCJ and Bankruptcies accepted if over 1 year old||0% on purchases for 4 months (6 months for balance transfers)||34.9%|
|Tesco Foundation credit card||£250 - £1,500||£5,000 per annum||CCJ accepted if over 18 months old||Tesco Clubcard points and free credit checks for 3 years||27.5%|
What are the best cards to rebuild credit?
- 29.9% APR
- If accepted, will qualify for £500 instant spend on Amazon (while waiting for the card to arrive)
- 0% interest on purchases for the first 3 months
- Starting credit limit of at least £500
- £20 Amazon gift card upon approval
- No annual fee
- Minimum monthly repayment of 1% of the amount of the balance plus interest or £5 (whichever is greater)
- 33.9% APR
- 0% interest on purchases for the first 3 months (providing you don't miss a payment)
- Starting credit limit from £50 to £1,200
- Minimum annual income of £3,000 required
- CCJs and bankruptcies accepted if more than 6 years old
- Interest rate reduction in the first 2 years as long as you stay within your credit limit and pay at least the minimum payment each month
- Minimum monthly repayment of 1% of the balance plus interest, 2.5% of the balance or £5 (whichever is greater)
- 34.9% APR
- Credit limit from £200 to £1,500
- No minimum income required
- 0% purchases for 4 months
- Accepts defaults, CCJs and bankruptcies if a year old or more
- Online eligibility check available
- 27.5% APR
- Starting credit limit from £250 to £1,500
- Minimum annual income of £5,000 required
- CCJs considered if more than 18 months
- Easily track spending through the mobile app
- Collect Tesco Clubcard points whenever you use your card
- 3 years of free access to your credit report and score
- Monthly repayments from just £25
How to get a credit builder credit card
Applying for a credit builder credit card is simple and can be completed online. I would recommend, where available, completing the relevant card's eligibility questionnaire. This is designed to check if you are likely to be successful with a full application. This process does not affect your credit rating so is well worth doing.
How can I improve my credit score without a credit card?
There are some simple actions you can take to improve your credit score, for more information read our detailed article - How to improve your credit score quickly
Also, I would suggest reading our article - LOQBOX Review - Should you use it to improve your credit score?
What other types of credit card are there?
In this article we have focused on credit cards that can help to improve your credit score. If you already have a good credit score or if you have improved your credit score, you may wish to look at other types of credit card. We have summarised the other types of credit card available below:
Balance Transfer credit card - A balance transfer credit card allows you to move your existing credit card debt onto a new credit card, usually on an initial interest-free period as set out by the card provider. Most card providers will charge a small fee of around 2% to make the transfer. Check out our article 'Best 0% balance transfer credit card deals'.
0% purchase credit card - A 0% purchase credit card is a credit card that does not charge any interest on purchases for an initial period of time set by the card provider. This type of card can help to spread the cost of a big purchase. Check out our article 'Compare the best 0% purchase credit cards'.
Cashback and reward credit card - A cashback and reward credit card allows you to earn cashback or rewards as you spend. The interest-free period is usually shorter than a 0% purchase credit card and so it is wise to pay the balance in full each month. Check out our article 'Compare the best cashback and reward credit cards'.
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