Credit Cards to Improve Your Credit Score
What You Need to Know
- Low Score Credit Cards are Credit Cards targeted at people with Low Credit Ratings who are unable to get regular Credit Cards.
- They offer a chance to rebuild your Credit Rating providing you use them responsibly and repay the full amount owing each month.
- They do however charge high amounts of interest on any amounts not paid back and often also come with tight spending limits.
- The only other option to those with Low Credit Ratings is a Prepaid Card, but this will not help improve your Credit Rating.
- Before signing up, it pays to be sure you have picked the best value card for you. Our Low Score Credit Card comparison page which has all the best offers currently available to help you make the right choice.
What is a Low Score Credit Card?
A Low Score Credit Card is one which is designed to help those with poor Credit Ratings to be able to hold a Credit Card, and to begin to improve their Credit Rating.
Low Score Credit Cards can be referred to under a variety of different names including Poor Credit Credit Cards, Credit Building Credit Cards, and Bad Credit Credit Cards. All these names refer to the same type of product.
People who are looking to get a Low Score Credit Card will be those who have an existing debt problem, those who have been declared bankrupt in the near past, those with little or no record of borrowing, or people who have found themselves rejected when applying for a regular Credit Card.
If you fall into one of these categories, the likelihood is that your credit rating will have been affected. A credit rating is a record of how well you have managed to handle your debts, and having a low credit rating can seriously affect your ability to borrow money in the future, on credit cards, and through other financial products.
The cards themselves are far from the best deals available on the market. They usually come with very tight spending limits and very high interest rates. But for those people unable to get another type of card, or those who need to take steps to improve their credit rating, the cards are extremely useful.
How do I know if I have a Bad Credit Rating?
Most people find out they have a bad credit rating when their application for a Credit Card or another financial product has been rejected.
If this happens to you, the important thing to do is to stop making applications immediately. A rejected application for credit damages your credit rating, and so making repeated efforts can do a lot more harm.
If this is the first time this has happened, and you know that nothing in your past should give you a particularly poor credit rating, it may just be that your customer profile does not fit that of the lender you applied to. Each lender applies different criteria when assessing applications for credit, and sometimes you may not fit the profile looked for by one lender, but are perfectly ok for others.
If this is not the first time this has happened, or you know a recent event is likely to have affected your Credit Rating, you might want to find out what your credit rating looks like.
There are three Credit Rating agencies and all will provide you with a statutory report. Many will charge a fee for such a report, but all should offer a free trial period, so as long as you cancel your agreement before this period ends it should be free.
The three Credit Agencies to check are:
There is also a service called CheckMyFile which offers a report combining the information held by Equifax and Callcredit.
The report will contain various details about your financial history, and the first step is to check that all the information they hold on you is correct. If it is not, contact the agency concerned to seek advice on how to get your file corrected.
If it is correct, you will have to find ways to improve your credit rating.
How does a Low Score Credit Card improve my Credit Rating?
Your credit rating is a record of how successful you have been in handling debt in the past.
If you have a record of making late payments to credit cards, have defaulted on debts before, been declared bankrupt, or had County Court Judgements against you, you are likely to have a low Credit Rating. People who have little or no record of borrowing may also find themselves with a low credit rating, even if they have not encountered any financial difficulties before.
A Low Score Credit Card can help to improve your Credit Rating and therefore increase your ability to access other financial products.
This is because to be eligible for one you do not have to pass all the same Credit Cards that are required with a regular Credit Card. Not absolutely everyone will be able to get a Low Score Credit Card, but most people with debt problems should be able to.
Once you have a low Score Credit Card, it is important to use it properly. To improve your credit rating, it is of course necessary to use the card. Just having a card in your wallet will not achieve anything at all. Always try to pay off the full amount each month, and never spend more on it than you can afford to pay back.
By using the card properly over a period of time you are building up a new positive record of borrowing money and successfully paying it back. This is therefore improving your Credit Rating, and in time, you should be able to build your rating sufficiently to make yourself eligible for a regular Credit Card and other financial products again.
What’s the Catch?
Needless to say financial institutions are not keen to lend money to people with low credit ratings. That is why the credit rating system exists in the first place.
The risk to them of losing the money they have lent to you is considered to be higher if you have a poor credit rating and a bad record of dealing with debt in the past.
This is inevitably reflected in the interest rates that these cards come attached with. These are typically between 29% and 35% APR, which is considerably higher than a regular credit card which has an average interest rate of around 20% APR.
Are there any other options?
If you have a low Credit Rating, the only other card you are likely to be able to get is a Prepaid Credit Card. These are cards that you have to load money onto in advance, and which can then be used as a normal credit card.
The difference with these is that they are not actually Credit Cards because you are never actually borrowing money. It is impossible to run up debt on a Prepaid Card because they only allow you to spend the money you have already put into your account. With no credit involved, the use of a Prepaid Card has no impact whatsoever on your Credit Rating, and whilst it will give you a piece of plastic you can use in shops and online, it will not help your credit rating.
How to choose a Low Score Credit Card?
There are a number of different lenders who offer Low Score Credit Cards and the cards that are available can vary in a number of ways.
The most obvious way is in the amount of interest charged. All Low Score Credit cards will have a higher rate of interest, but some rates will be higher than others.
Most Low Score Credit Cards don’t have introductory offers, but some do offer reward schemes, such as bonus supermarket points as well.
Several recognisable high street banks and financial institutions do offer Low Score Credit Cards, but not all. There are also a number of other less well-known lenders in this space. If you are thinking to go with one of these companies, take a look into their background first and make sure they are reputable.
A good place to start looking is our Low Score Credit Card comparison page which carries the best offers currently available from all the main reputable lenders, along with our recommendation of the best offer currently available.
- Check out our brief Guide to Credit History Black Marks, to learn more about your Credit Rating.
- To see all of the best Credit Card deals currently available on the market take a look at our Credit Card comparison pages.
Find out about the Companies that provide Credit Cards with our Top Credit Card Services site