Credit cards have become an integral part of modern financial systems, offering convenience and flexibility to consumers. While a credit card is a great financial tool that one should have, only some who apply for it are lucky enough to have it, as there are a lot of eligibility criteria to acquire a credit card. One of them is having a good credit score.
Credit score plays an important role when evaluating credit card eligibility. A credit score is a 3-digit score that reflects a person’s creditworthiness. It tells the credit provider how likely you’re to repay the credit in full. Factors like credit history, bank accounts, information on electoral registration, residence, etc., are considered to evaluate your credit score.
However, obtaining a traditional credit card can be challenging for individuals with limited or poor credit history and low credit score.
Luckily, there are plenty of other options, like applying for credit builder cards and credit cards no credit checks available for people with poor credit scores. By using these cards, you can not only manage your finances but also improve your credit score.
But before knowing how credit builder cards can help you improve your credit score, it’s important to know what they are and how they work.
What are credit builder cards, and how do they work?
As the name implies, credit builder cards are cards specifically designed for people with a poor credit score or low credit history who want to rebuild their credit score. They are also referred to as ‘bad credit’ credit cards.
Credit builder cards look and work like any other traditional credit card. However, credit builder cards have a lower credit limit. This is to ensure that the user doesn’t spend more than what he can repay and maintain a good credit score. Besides this, the interest rate charged on such cards is typically higher than standard credit cards.
Various credit providers in the market offer credit cards for credit building. Different lenders have different eligibility criteria. Thus, it’s essential that you know the eligibility terms before applying for a card to maximize the chances of approval.
However, some typical eligibility criteria for applying for a credit builder card are:
- A person aged 18 or above
- UK resident
- Employed
- UK bank account holder
- No active IVA
- Not bankrupt
How to use credit builder cards to improve your credit score?
When applying for credit builder cards, you should remember that such cards have low credit limits and they charge high APR interest ratcredit cards no credit checkses than standard credit cards. The high-interest rate on outstanding balance often intimidates people. However, the key is using a credit builder card strategically. If a credit builder card is used and managed correctly, you will surely see an improvement in your credit score.
Here are some tips to remember:
- Understand Your Credit Builder Card: First and foremost, familiarize yourself with the terms and conditions of your credit builder card. Read the fine print, including any fees, interest rates, and credit limits associated with the card. This will help you make informed decisions and avoid any surprises later on.
- Make Timely Payments: One of the most crucial aspects of improving your credit score is making timely payments. As Alex Kosuth-Phillips, compliance manager at thimbl, a credit builder card providing company, advises, “Ensure that you pay your credit builder card bill on time each month. Doing so will demonstrate your ability to manage credit responsibly, positively impacting your credit history and credit score.”
- Keep Credit Utilization Low: Most finance experts emphasize the importance of keeping this ratio low, ideally below 30%. By maintaining a low credit utilization, you showcase responsible credit management, which can boost your credit score over time.
- Avoid Maxing Out the Card: While it’s tempting to utilize the full credit limit on your card, it’s advisable to refrain from maxing it out. You should keep your credit card balances well below the credit limit. This demonstrates restraint and responsible usage, positively impacting your credit score.
- Regularly Review Your Credit Report: Regularly reviewing your credit report is crucial for monitoring your progress. Check for any errors, discrepancies, or potential identity theft issues. Reporting inaccuracies to credit bureaus can help maintain an accurate credit profile and prevent any negative impact on your credit score.
Building a positive credit history takes time and consistent effort. By consistently using your credit builder card responsibly, making timely payments, and keeping credit utilization low, you’ll gradually see improvements in your credit score.
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