How good is your credit score?

With lenders ever increasingly using credit scoring to make lending decisions, having a good credit score has never been more important.

One way to improve your credit score is to use ‘credit building credit cards’. Our guide explains how these cards can help build a good credit score, as well as outlining two other ways that you can improve your credit rating.

Credit building cards can help build a good credit score

You may be surprised to learn that the most common reason applications for credit in the UK are declined is not for ‘bad credit’. In fact, the most common reason to be knocked back for a loan or credit card is because of ‘thin credit’ – where there is insufficient information about you on file for a lender to make a decision.

So, it is important that you build up a good credit record. Credit building credit cards allow you to demonstrate to lenders that you can manage credit. By using credit building cards and making all your payments on time, your credit record will show that you are capable of responsibly managing your borrowing.

If you do have poor credit, bad credit credit cards will again help you to repair your credit score.  Over time, making all the necessary payments to your poor credit credit cards will prove to future lenders that you are a low risk.

Make sure you are on the electoral roll

One of the easiest ways you can improve your credit rating is to ensure you are on the electoral roll.  Don’t wait for your annual reminder; contact your local council and make sure you’re on the voters roll straight away.

Make your payments on time

If you miss a credit card or loan payment, that will stay on your credit file for up to six years. A silly oversight can therefore prove costly for a long time. To protect your credit rating, make sure you always make at least your minimum repayments on time.

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How good is your credit rating?

More and more Brits are suffering from a poor credit rating. Credit Action, one of the UK’s main debt charities, reports that there were 1,716 County Court Judgments (CCJs) issued in the third quarter of 2010 and that the Citizens Advice Bureau deal with 9,389 debt cases every day in England and Wales.

However, even if you have poor credit, it is possible to take proactive steps to improve your credit rating.

James Jones, from credit reference agency Experian, recently said: “Although different lenders tend to employ different criteria for assessing credit applications, there are general things you can do that will certainly improve your chances of success, such as paying your bills on time and keeping a close eye on your credit report.”

1. Use credit building cards and loans

Credit building credit cards are designed for people with poor credit. While they may carry an interest rate that is higher than some other cards, they allow you to make purchases on your card and to make regular, timely payments. Using credit building cards carefully proves to lenders that you are capable of managing credit responsibly.

You could also consider bad credit loans which work in the same way.

2. Make sure your credit information is correct

Incorrect information, such as misspelt names or a wrong address, can harm your credit score. So, regularly check your credit report and correct any errors. If you don’t, you may find that you are declined for any type of credit, even credit building credit cards.

3. Pay everything on time

As well as paying all your bad credit loans and credit building cards on time, you can improve your credit rating by paying all your bills before the due date. Mortgage lenders, store card providers and even utility companies are now sharing information with credit reference agencies. Any missed or late payments will damage your credit rating.

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If you have experienced credit problems in the past then you may think that you will be ineligible for a new credit card. However, credit building credit cards are designed to help people who have a less than perfect credit history.Here are five things you should know about credit building cards:

1. You don’t need a perfect credit rating to get one

If you have defaults, arrears or county court judgments (CCJs) on your credit file you may have struggled to be accepted for a credit card through a traditional source. Credit building cards are designed for you if you have experienced credit problems in the past.

2. They can help you get your credit rating back on track

Along with bad credit loans, credit building credit cards are designed to help you repair your credit rating. If you make your payments on time on a regular basis, it will demonstrate to future lenders that you are capable of managing credit responsibly.

3. They will charge a higher rate of interest

As far as a lender is concerned, if you have had credit problems in the past, you are a riskier customer. That is why credit building cards often charge higher rates of interest than standard credit cards.

4. They offer many of the benefits of traditional credit cards

Credit building credit cards offer many of the same benefits as traditional credit cards. You can use them for the purchase of many goods and services in stores or online.

5. Your credit limit may increase as you go along

If you manage your credit building cards carefully and responsibly, and make all your payments on time every month, you may find that your credit limit increases. As you prove that you are a responsible and reliable customer, you may find that your credit limit will rise and, occasionally, your interest rate will also be reduced.

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Prepaid cards can be an important part of your overall financial management system, and they can be a great way to teach teens about managing their money, particularly when they leave home for college or university. Here are three of the many benefits of prepaid cards.

1. You can’t go overdrawn. Just like with cash, you can’t spend more than you have. Unlike cash, however, if your prepaid card is lost or stolen, you can cancel it quickly and have it replaced for a small fee. There’s no doing that with cash.
2. Prepaid cards can be used to shop online. Sometimes the best deals to be had are online. A 50-foot DSL cable that costs £50 at the local electronics store can often be had for a fraction of that from an overstock website. Prepaid cards open up a world of opportunities for comparison shopping that you don’t have with cash.
3. Some of them offer perks. Some prepaid cards (though not all, so be sure to read the terms and conditions) offer extras like credit building tools and purchase protection. Some also offer discounts from selected merchants.

Today there are numerous prepaid cards available to you with varying fees, terms, and extras. Be sure to take a few minutes to compare prepaid cards before signing up for one so that you can make the most of this uniquely useful financial tool.

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Have you had credit problems in the past?

If so, you might be finding it hard to get a new credit card.  Or, you may be wondering how you go about improving your credit rating in order that you may be able to get a mortgage, loan or credit card in the future?

While it can be a slow process, credit building cards are a great option to consider.  Even with poor credit, you can prove that you can manage borrowing responsibly.  This will help you to repair your credit rating at the same time as you benefit from a credit card facility.

What is a credit builder card?

Due to the much publicised recent problems with so-called ‘sub-prime’ lending, companies have been much more reluctant to lend to people with poor credit.  This may be a previous bankruptcy or repossession, but poor credit in the eyes of banks can also include missed or late loan or credit card payments.

Credit building cards are designed for people who have experienced credit problems in the past.  They have a lower credit limit and will help you prove that you can manage your card and your spending responsibly.

How credit building cards can help you

If you use a credit builder card and pay off the balance every month, on time, it helps you to demonstrate to potential lenders that you are capable of looking after your money.  You can show that you are a reliable payer and that you can deal with credit in a responsible fashion.

Be careful not to maintain a balance on your card for long, however.  As lenders are taking more of a risk granting a card to you if you have experienced poor credit in the past, they will also charge a higher interest rate on any balance you don’t repay.

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Standard everyday prepaid cards don’t help to build your credit history, but they can be a super convenience for a lot of people. People just arriving in the UK, or those who can’t get a regular bank account, love these cards because they are convenient for online and everyday shopping. Plus, many people can arrange to be paid by employers putting money directly onto the card.

They are also a great way to give teens an allowance in a way that allows them to make purchases online without having access to credit. And, with PIN functionality, there is much more security than with carrying cash, which makes them great for travelling.

There are, however, some prepaid cards that help you build, rebuild, or improve credit, such as the Cashplus card. With these cards, you can be lent a year’s worth of monthly fees in advance, which you pay back in monthly installments. Your payment history is then forwarded to credit rating agencies. If you do this as well as keep up on all your monthly payments (such as rent, phone, etc.) you will improve your credit rating.

Whether they build credit or not, prepaid cards have many benefits and are very useful for managing money, whether you have no bank account, or whether you simply want another convenient way to pay for purchases without risking overspending.

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Most of the time, people who either have bad credit or no credit will have a hard time getting a standard issue credit card. However, there are credit card issuers who offer cards designed to build credit for those who have not yet started credit building and for those with bad credit who want to rebuild their credit history. These cards are sometimes referred to as credit builder cards.

With this type of credit card comes some security features for the bank or card issuer. For example, because of the higher risk of non-payment from someone with poor or no credit, the interest rates on these cards are higher than on cards for people with good credit. With a credit builder card, as long as the balance is paid on time every month, the user gradually builds up a better credit rating.

If the cardholder’s credit rating improves and stabilises, they may be offered a standard credit card with a better interest rate. It is important to note that credit cards for people with bad credit should not be used for frivolous or unwise spending, but should instead be used to show the card issuer that the cardholder is practicing responsibility with his or her credit. As the cardholder continues to be responsible with the card, their credit rating will gradually improve, leading to better credit terms in the future.

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If you compare the number of 0% balance transfer cards available in the market with those available for credit building or re-building, the results are shocking. For example, on the CompareandSave.com Balance Transfer table we feature over fifteen 0% balance transfer cards. On the Credit Building card table, we feature only four cards. The contrast in choice is similar on other leading credit card comparison sites.

I find this strange. In tough economic times, a growing proportion of the population are likely to find credit builder cards the most suitable option. However, relatively few issuers offer this type of credit card. At face value, it would seem that the risks of default in this ‘near prime’ demographic are likely to be higher, therefore the sector would be less attractive to issuers.

On the other hand, credit building cards normally restrict the credit limit to a maximum of £1,500. When you compare that to the high-end cards, the exposure per card can easily be five times greater, significantly increasing the risk per card for the issuer.

Capital One and Barclaycard are the two major providers that are present in the credit building space. It is fair to say that Barclaycard features in the higher credit score end of the range, whereas Capital One cards are more accessible to a wider range of applicants. I wonder whether the other big providers may look to enter the space and provide consumers outside the ‘prime’ market with some welcome choice and innovative products. Fingers crossed.

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You can now apply for the Cashplus Gold MasterCard Deluxe Account prepaid card, but only on compareandsave.com.

The new prepaid card, which has some of the best features of a bank account and some valuable Cashplus card benefits, has 100% instant approval guaranteed (providing you live in the UK and are 18 years of age or older) and you do not need to pass a credit check to get accepted.

The bank account features of the prepaid card include secure online banking 24 hours a day, seven days a week, free online payments and transfers (including regular standing orders), the ability to have your wages paid directly on to the card and free cash withdrawals from cash machines across the UK.

In addition to these banking features, you will also get the great Cashplus prepaid card benefits including 1% cashback on the first £1,000 of your spending (then 0.5% after that), free purchase protection, and the option to add Creditbuilder to your card (at no extra cost) to help you build or repair your credit rating.

What’s more, the prepaid card only costs £9.95 to set up and then £9.95 for any month in which you have a balance on your card, so offers great value for money, and is a MasterCard so will be accepted at 29 million outlets worldwide and can be used to shop online.

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