Credit cards get a bit of a rough ride in the press, often blamed for leading individuals into debt and causing financial problems.
However, despite their reputation, credit cards can give you access to cheaper borrowing and help you to spread the cost of big purchases in an affordable way; frequently offering more competitive repayment rates than alternatives such as car or retail finance.
Even if you have a less than perfect credit history, you could still find a lender willing to provide you with a card. In fact, there are some which specifically offer credit building credit cards for poor credit.
What many people don't appreciate is that one of the best ways to improve a poor credit rating is to get a credit building credit card; these slowly improve your score to help you eventually improve sufficiently to qualify for the more competitive credit builder card deals in the market.
Credit building credit cards can also be useful if you have never had a credit card before. They're often popular with students because they generally have low minimum income requirements but you may find that credit cards specifically designed for students offer a better deal.
Here's the lowdown on what you need to know about using credit cards to build credit rating.
How to use a credit building credit card
If your credit rating is looking less than healthy you could considering using a credit card to build credit score. Use credit building cards in the right way along with other measures designed to build your credit rating and you'll help to ensure that you qualify for the better interest rates in the future.
If you are using credit cards to build up credit, the chances are you won't be given a competitive interest rate or qualify for market leading 0% credit cards so borrowing money in this way will work out as rather expensive. But when you're looking to rebuild your credit history borrowing isn't your intention. Instead repairing your adverse credit score is your primary aim.
The best way to build up your rating by using a credit builder credit card is to make sure that you don't pay any interest. Credit building credit cards shouldn't cost you anything to run unless you carry over a balance from one month to the next. This gives you an easy way to improve your credit rating while avoiding paying higher interest charges that will make your purchases much more expensive.
You may wonder how to avoid interest if you are using your card but by simply paying your balance in full by the due date, you won't get charged any interest. By doing this, you can use your card in order to improve your credit rating, but it won't actually end up costing you any money.
Spend a little on your credit builder card each month and then pay off the balance in full and on time and gradually your credit profile will be improved.
One thing to bear in mind is that the credit limit on these types of cards is often lower than on regular cards, so if you do need to spread the cost of a purchase, you may be more limited. This can, however, be a good thing if you need to keep your spending in control.
How long should you use a credit building credit card?
How long should you use a credit building credit card is a question only you can answer. As long as you aren't paying any interest, you can carry on using it for as long as you want.
However, after a year or so of good credit management if you are still repaying your balance in full every month, you should look to switch providers to a card which is more competitive as soon as your credit rating has sufficiently improved.
Before you complete your credit card application, it's always a good idea to compare credit building credit cards just to make sure you are getting the best deal available in the market. Factors worth considering include the APR, the length of interest-free period available, maximum credit limit and whether there is a minimum income specified for eligibility.