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Last updated on 21st of April 2022

How to Build Credit with a Credit Card

Whether you are new to the U.K., have no credit history or poor payment history, there are many things you can do to rebuild your credit report.
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Whether you are new to the U.K., have no credit history or poor payment history, there are many things you can do to rebuild your credit report.

One of these methods is to use a credit card to build your credit profile and improve your chances of getting future credit with favourable interest rates.

But it’s important to know that it might take up to six months or more to build up your credit report and start seeing the benefits of these actions. It takes time for information about new accounts or credit to appear on your credit record and improve your score. 

Getting a credit card to build up your credit history can be a good option if you have a low credit score or have no credit history yet. Keep in mind that credit cards can have high interest rates, so this should not be an option if you are already in debt, or won’t be able to comfortably repay it.

What is a credit builder credit card?

A credit builder credit card can help you to rebuild your credit report or establish a credit record if you don’t have one yet. As long as you make payments on time, a credit builder credit card can help rebuild your credit and improve your chances for credit with better rates in the future.

Here are some of the ways you can use a credit builder credit card:

  • Spend cautiously. Use the card to build up your credit but don’t use all the credit available to you at once. Spend responsibly and only purchase what you can afford to repay in full.

  • Pay back as much as you can. If you pay back the total outstanding amount every month you’ll pay less interest. Pay more than the minimum payment every month - if you can - and benefit from less interest while improving your debt repayment history.

  • Improve your credit. If you keep on repaying on time, you’ll increase your credit score in a few months. You can also set up a direct debit from your account to ensure your payments are always on time. 

Credit builder credit cards are one of the ways for people with a limited credit history to start improving their scores. This is why it’s important to use these cards to rebuild your credit, and not as a means to get deeper into debt. Repay on time, in full, and you might see your credit score improve. 

Where to get a credit builder credit card

Most big banks and credit unions offer credit cards specifically for people who need to build their credit. This means you may be able to get a card from your current bank, helping you improve your credit. 

You can also pre-qualify online without hurting your credit score. This is a good way of knowing what you may qualify for without having to risk hurting your credit score with multiple applications. 

Keep in mind that although credit builder cards are designed for people with low credit scores, it’s not a guarantee that you will get approved. You may first need to improve your credit score to be accepted.

It’s also useful to check your eligibility before you formally apply, to get an idea of whether you may be approved by the creditor. If you receive favourable offers, you may proceed to formally apply.

How to apply for a credit builder credit card

Before you apply for any credit card, always consider your options and assess whether you’ll be able to comfortably make the payments. 

One way to do this is to get a pre-approval from your bank or lender to see what type of offer you may qualify for. Pre-qualification won’t hurt your credit score and it can give you a good idea of the rates you can qualify for before you make a formal application. 

Once you know what you want, you can apply directly at your bank, or you can apply online. Compare APR rates from multiple cards, consider any fees payable, and choose the best offer for you.

Before sending in your application, make sure you have the following:

  • Your monthly income details

  • Your employer’s details

  • Your bank account details

You may also need to provide your existing credit commitments, including credit limits, and amounts outstanding. You may also need to draw up a list of your income and expenses every month.

Factors that may prevent you from getting credit

There may be other things - apart from your credit history - that prevent you from getting approved for credit. These should be addressed first, before you apply for more debt, as multiple applications can hurt your credit score - even more so if they get declined.

Here are a few things that may cause you to be declined for credit:

  • Electoral register. If you are registered to vote in the U.K. lenders can do a check to confirm your address, so it’s important to make sure you are listed on the electoral register.

  • Joint credit agreements. If you have a joint credit agreement with someone else (like a mortgage or loan) their credit rating could affect yours. Their credit file will be linked to yours and lenders may also check their profiles when assessing your credit profile.

  • Check your credit report. Incorrect or outdated information on your credit profile can also hinder your chances of getting approved for credit.

Other ways to improve your credit history

Apart from using a credit card to rebuild your credit, there are other ways you can improve your credit score, especially if you have a limited credit history.

Apply for a credit builder loan

One way to improve your credit score is to apply for a credit builder loan that you repay monthly. CreditSpring’s no-interest credit builder loan (43.1% APR Rep) allows you to stay in control of your finances and rebuild your credit profile with on-time payments. 

Credit limits range between £300 and £1,000 and checking your eligibility without affecting your credit score. Building your credit score this way will help you qualify for more favourable loan rates.

Register on the voter roll

Lenders can check the voter roll to confirm your address and contact details. Register on the voter roll and make sure your details are up to date before you apply for credit. 

Open a bank account

By setting up and managing a U.K. current account you can help build your credit history as it will help to show that you can effectively manage your income. Managing a bank account responsibly can help with your credit rating and it can also help to validate your income.

Set up direct debits

Set up some regular direct debit payments for bills like home insurance or gas and electricity. This ensures that your payments are always on time. However, if you do not get a regular income or you are worried that you won’t be able to make payments on time, this may not be a good option. 

Pay on time

It’s very important to always pay your bills on time. A late or missed payment can count against you. If your lender has to take legal action against you or go to court to get back the money you owe them, a County Court Judgement may significantly affect your ability to get credit and it will remain in your credit file for at least six years. 

Credit utilisation

Remember that the amount of credit you use will also affect your credit profile. For e.g., if you can use £2,000 on your credit card, don’t use it all at once as this will equate to 100% of your credit limit. 

Your credit utilisation rate refers to the amount of credit you use, from what you have available. Try to stay within 25% to 30% of your credit limit, especially if you want to build up your credit record.

If you pay back most of the credit you’ve used as soon as possible, you’ll also reduce your ratio.

What to consider before you borrow

One of the most important things to consider when thinking of applying for a credit card to improve your credit is, do I really need to borrow money? Taking out credit and making monthly payments on time can improve your credit score, but missed payments can make your score go down even further.

Also, be cautious about how you apply for credit. Making too many applications at once can hurt your credit score, so don’t apply for multiple cards in a short period of time. 

Some lenders may only require a soft credit check to provide you with an initial offer. This is a good option as it won’t have an effect on your credit score.