14 December 2017 : 

Our credit card guides give you the info to select your next card
Home / Compare Credit Cards / Credit Card Guides / Guide to Cards for Rebuilding Your Credit Score

Guide to Cards for Rebuilding Your Credit Score

Download guide pdf

Guide to Cards for Rebuilding Your Credit Score

People that have had financial difficulties in the past are likely to have seen them have a direct effect on their credit score. Debt problems and credit scores go hand in hand, but it is not the only thing that can impact a person's rating - a lack of borrowing history can also be a problem.

There are three UK credit reference agencies (CRAs): Experian, Equifax and CallCredit. They compile the data about financial behaviour, such as missed payments, rejected applications, borrowing amounts and so on, to create a score [Read more about Credit Bureaus here].

This score is then used by lenders to determine whether people are suitable candidates for borrowing. Someone with a low credit score will often be turned down for a mortgage, loan, credit card or even a mobile phone contract, whereas someone with a high credit score will have access to the best deals available.

When someone has a poor credit score, they are often stuck in a vicious circle, as the only way for people to rebuild their credit score is by demonstrating that they are now responsible borrowers, but to become a responsible first you must be allowed to borrow.

However, with few lenders willing to accept applicants with anything less than a perfect credit report, it can be difficult to improve their score. However, with the market now filled with bad-credit or credit-builder credit cards, it is possible for people to use credit to fix their score.

Different types of credit cards

Those that are particularly savvy when it comes to money, will be aware that there are several types of credit cards. Balance transfer cards are good for cheap debt, while reward cards are better for high spenders.

There is a credit card for may varying needs - there is even one that helps people rebuild their credit score. It is known as a bad-credit or credit-builder card; these credit cards allow those with lower ratings to access credit, with conditions.

How it works

By using a bad-credit credit card on a regular basis, cardholders are able to demonstrate that they are reliable borrowers. Provided that payments are met on time, use of the credit card will create a positive mark on the report.

In order to make the most of the card, it's important that people use it effectively. Instead of spending on the usual monthly expenses with cash or debit card, use the credit card and pay back the value immediately.

This will help increase chances of rebuilding credit scores as it shows the CRAs and lenders that they manage credit well, and are responsible borrowers. However, it is essential that cardholders do not default on their minimum payment at any point or it will have an adverse effect on their credit score.

What to watch out for...

The credit card market is filled with competitive deals, offering consumers better value for money than their existing providers. However, bad-credit credit cards are not designed to be as competitive, so they can end up being quite expensive.

High Interest Rates

Having a low credit score means that people will not be able to get 0% deals or even the average interest rate of around 19%. The majority of bad-credit credit cards have a Representative APR of at least 39.9%, with some even higher. It is also important to remember that the advertised interest rate may not be the rate that all applicants are offered.

Low Credit Limits

As a poor credit rating suggests that borrowers are not trusted to repay in full and on time, lenders will only offer low credit limits. Credit-builder credit cards will have limits of around £100 to £500, but this is likely to increase after demonstrating good behaviour for around six months.

No Interest-Free Period

Most standard credit cards offer cardholders a grace period, where no interest is charged on purchases for 30-60 days. However, this is unlikely to apply to credit-builder cards, with interest often charged from the moment the transaction goes through.

This makes it all the more important that bad-credit cards are only used for rebuilding credit scores, rather than borrowing.

Compare credit cards

Just like all other credit cards, ones specifically designed for those with low scores still need to be compared. One lender might have higher credit limits and lower interest rates than another, so it is important to compare what is available on the market.

Comparing bad-credit credit cards is often easier than for more traditional cards, as there are fewer features to consider.

Despite these credit cards targeting people with low scores, some people will still be ineligible. Many lenders will not accept people that have been declared bankrupt or had CCJs.

It is important that once people are rejected they do not continue to apply for similar credit cards as this will worsen their score further.

Instead, there are prepaid cards that can help start the rebuilding process. These cards come with an annual fee, but this is repaid monthly, meaning that it works in a similar way to a loan.

Maintaining a good credit score is key to accessing the best credit products at the lowest interest rate. Rebuild your credit score with a credit building card.

More Money Guides...

Product Offers
Please ensure that you fully read the terms & conditions of any product or policy before you decide to proceed and are fully aware of the total costs and the benefits and any exclusions or limitations applicable to the product or plan.

Please note that the product links will take you direct to the Issuer or Insurer's site direct and we cannot be held responsible for the information which they provide within their own sites. On some comparison tables we use a star rating which rates products by visitor popularity.
Follow Us: facebook twitter Google+

©2017 compareandsave.com is a trading name of Freedom Marketing Ltd.
Freedom Marketing Ltd is a credit broker, not a lender and is authorised and regulated by the Financial Conduct Authority, firm reference number 493117. This can be checked at http://www.fca.org.uk/register. Registered in England & Wales under registration number 05349340. The company's registered office is Freedom Marketing Limited, Colchester Centre, Hawkins Road, Colchester, Essex, United Kingdom, CO2 8JX.

The offers that appear on this site are from companies from which compareandsave.com receives compensation.

The Financial Ombudsman Service (FOS) is an agency for arbitrating unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk.