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3 reasons to consider a credit rebuilder card

3 reasons to consider a credit rebuilder card

By: Kate Anderson | 24th May 2020

In the world of personal finance, a credit score can mean everything. It could be the difference between being able to borrow money and not.

So when does it make sense to take out a credit rebuilder card? Here are three scenarios where taking out a card aimed at people with no credit history or a poor credit history could be a savvy financial move.

You have no credit history

Either you have just turned 18 or you have never had a credit card. You have decided that now is the time to join the world of credit cards, but no one will accept your application. What should you do?

A credit rebuilder card is a great way to start building up a credit history. Most providers of such cards offer a personalised approval service, meaning they take into account your current financial situation and don’t rely entirely on information from the three credit rating agencies in the UK (TransUnion, Equifax and Experian).

Typically you will need to provide information of your income and outgoings, but most providers of credit rebuilder cards say they consider applicants who are new to credit. Then, as you start using your card responsibly, your credit history will grow, putting you in a stronger position for applying for other types of borrowing in the future.

You need to improve your credit score

You may have found yourself in financial difficulty in the past and now have a poor credit score, but are looking ahead to when you may need to take out a personal loan or a mortgage. Credit rebuilder cards can be used as an option to start improving your credit score and setting yourself up as a stronger applicant for other forms of borrowing.

Credit rebuilder cards also often accept your application even if you have had an individual voluntary arrangement (IVA) or a county court judgement (CCJ), although typically you will need to be 12 months clear of these before applying.

The way a credit rebuilder card works is to set low and manageable credit limits in the first instance. Then if you can display good borrowing practices such as staying within your given credit limit and paying off your balance each month, you could be offered an increase in your credit limit at staged points during the year. Another incentive to stay on the straight and narrow is reducing your APR gradually over time. Demonstrating that you can be responsible with credit and manage your borrowing will show on your credit report and help push your score higher.

You are on a low income

Either you are a student, self-employed or fail to meet the income requirements for other credit cards, but the result is that you are struggling to get credit. It depends on the provider, but most credit rebuilder cards accept applications even if you are unable to prove a regular income or you work part-time, are on a lower income or are a student.

While you may not be able to secure yourself the best APR or 0% interest offer on the market with this type of card, it is a way to have a credit card if you are struggling to be approved elsewhere. Then, if your circumstances change in the future, you will have a strong credit track record already in your pocket.

Important to keep in mind

As noted above, it’s likely you won’t be able to score the best APR (interest rate) on your card. In fact, with credit rebuilder cards, APRs are typically much higher than on cards that require a high credit score.

This isn’t reason to despair! What it means is that you have to be especially mindful of how you use your card and that you pay it off on time. If you don’t rack up debt on the card, then you shouldn’t have to worry about the interest rate.

And, by practicing good credit habits, the hope is that down the road you’ll be able to qualify for a card with a much more attractive rate (though even then, it’s probably better to avoid interest charges!).

Interested in finding a credit rebuilder card? A good place to start your search is our picks for the best cards for those with bad credit histories.

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