Credit-builder credit cards are credit cards for people who choose to boost their credit score because they have little or poor credit. Your credit score is used to determine if you are a reliable person to lend money or give credit to.
You’ll find it more challenging to borrow money or get credit if your credit score is low. But, the problem doesn’t have to be a lifelong one, and one way to boost it is to get a credit card from a credit builder.
Here’s your essential credit-building guide. Read on to learn more about how bad credit credit cards are used to help build credit.
Is Credit-Building For You?
For people trying to boost their credit score, or for people who don’t qualify for conventional offers, credit cards to create credit may be a good option. Having a credit card from a credit-builder will help to increase your credit score.
Other items you can do to improve your score include paying bills on time, making at least the minimum repayment on existing credit agreements per month, and registering at your current address for the electoral roll.
How This Works
Credit-building credit cards have higher-than-average annual percentage rates (APR) and low credit caps, also referred to as ‘poor credit’ credit cards.
This means that you will not borrow a large amount of money, whereas the interest rate on the money you borrow will be higher than average. However, by repaying the balance in full each month, you can stop paying any interest.
Doing this will build your credit over a sustained period and make you more appealing in the future to lenders. Every month, repaying your debt will prove that you can manage credit and that you have control of your finances.
Secured Credit Cards for Credit Building
The credit limit on your card is usually dependent on the balance of the deposit. It can be as low as $200 or $300 for the mandatory deposit for individual cards.
Secured cards restrict the issuer’s risks and help customers remain within their means, which could be tempted to go crazy with a standard credit card.
If your bank records your payments to one or more of the three major credit bureaus and your credit record is otherwise unblemished, you will have ample history to qualify for a standard credit card after six months or so.
What’s more, if you have proven that you can count on making your monthly payments on time, if you ask, your secured card issuer will be prepared to “graduate” you to one of their unsecured cards.
How to Choose Your Card
With different interest rates, other cards will come, and some will also have additional advantages, such as the opportunity to receive incentives. You can easily browse and weigh which one is better for you. Only click through and submit once you have settled on a card that suits you.
With this kind of card, the most significant thing to note is that you must use it to your advantage. Defaulting on payments will result in you paying massive interest rates and being stuck in a debt loop, which will further hurt your credit score and cause you in the future to pay more for credit.
Using an eligibility checker that lets you see several different credit cards and the chances of being approved are the right way to escape hard checks. This way, before you actually make an application, you can weigh all your choices.
The interest rates offered on credit cards will never be competitive, but vendors provide different rates, so it’s worth testing what’s accessible.
Each card will provide numerous rewards and benefits, whether it’s in-app banking, access to monitor your credit score, or customer service 24 hours a day. Choose a card that gives priority to what you want from a credit card builder.
Don’t get too many, even though you find it reasonably convenient to obtain a credit card. According to Fair Isaac Corp., which computes FICO ratings, having more cards than you need will not help your credit score and potentially damage it.