Is a credit building card a good idea

Posted by Kelly Luff in Personal Finance on 24 March 2017 - Kelly is a Marketing Executive at checkmyfile

A credit building credit card is most often used by people that are either looking to improve their credit rating or take out their first credit card.

Credit building cards give you access to credit when you have had problems with mainstream lenders and they can also help build your credit history, to ensure that the next card you get could well have a more competitive APR or an interest-free period.

While many people can understand why they may have difficulty getting a card from a provider like Halifax or American Express when they have a poor credit history, those who have never had need for credit often find themselves being rejected by this type of lender due to a sheer lack of information on their credit report.

Credit cards from providers such as Aqua, Marbles and Capital One offer you the opportunity to make purchases each month and build your repayment history, to show that you are able to make payments responsibly.

They do have much higher interest rates, to reflect the higher risk that the customer is perceived as being, so it is important to ensure that you are not simply spending up to the credit limit and then making minimum payments.

If you do use such a card, it can make sense to pay for something that you might be buying anyway, such as food or petrol. It can then be paid off each month using your normal budgeted income, so that you do not incur any interest payments.

When you initially get a card like this you’ll be likely to receive a low credit limit – around £200 is typical to begin with. This then tends to be increased once you have paid the balance on time for a number of months.

The most important thing about these cards is that they are there to demonstrate that you can use credit responsibly. You therefore need to make sure that you don’t exceed the credit limit, that you pay on time, and that you don’t spend money that you don’t have.

If you have had problems with debt in the past, the last thing you want to do is tempt yourself back into more debt, so be sure that you are going to be using this type of card for the right reasons before you apply.

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