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Credit Cards to help improve your credit rating

Credit Cards to help improve your credit rating

Category: Credit cards

Updated: 12/01/2015
First Published: 05/04/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The time wasn't too distant when you could have the debt of a small country, and still have trouble getting out of your front door each morning on account of having to wade through a tide of fresh credit card offers. Then came the credit crunch and the global financial crisis – suddenly things weren't as easy as they were before.

For lots of people, the stigma of having a bad credit record has narrowed their options considerably, so rebuilding their credit score has taken on a whole new meaning. Let's be clear then, this tip isn't to tell you how to repay your debts, nor to encourage you to borrow; it is intended to suggest ways in which you could use cards to help rebuild your credit rating.

Credit Cards

It may well be that credit cards are what got you into trouble in the first place, so before you consider what I'm going to say next, think about this:

If you are undisciplined and cannot guarantee to yourself that you won't clear the balance in full each month on a credit card, do not apply for one. If you can be calm and resist the urge to spend, spend, spend on the credit card read on – but with care!

So that's the warning; here's the idea. Credit cards, when used responsibly and in a disciplined manner, can actually improve your financial standing. Using any sort of credit whether it be an agreed overdraft or credit card and paying it back also has the advantage of making you more creditworthy when you really need it, like when applying for a mortgage. As well as this, all credit card providers are obliged by the Consumer Credit Act to give you free purchase protection on all goods worth between £100 and £30,000. This makes credit cards particularly useful for online shopping as if any goods you buy are faulty or not delivered; your credit card provider is held jointly responsible with the seller, thereby giving you protection from unscrupulous companies.

Credit Cards for bad or poor credit

Now you may be thinking that there isn't a card provider in the land who would touch you with the proverbial bargepole, but you may be wrong. There are cards like the Capital One Bank Classic Visa and Vanquis Bank Visa Card who will all consider applications from those with County Court Judgements, albeit with eye-watering rates of interest. However cards such as the Barclaycard Initial will not accept you if you've had County Court Judgments or Individual Voluntary Arrangements in the last 5 years. Credit cards aimed at those with poor credit also tend to offer lower credit limits in comparison to other cards. But before applying for a card, make sure you meet the basic eligibility criteria – Vanquis Bank for instance, will look at an application from you if you have had a County Court Judgement, although not if the CCJ has been registered in the 6 months preceding your application.

If you haven't had any County Court Judgements or defaults in the previous 12 months, another innovative credit card is the Capital One Bank Progress MasterCard which works on a similar premise as previously described, but with one key difference. With the Progress MasterCard your interest rate is guaranteed to shrink every few months, so long as you stay within your credit limit and make the minimum payment each month. Pretty neat, eh?

The way to play a credit card with a high interest rate is to make sure you pay your balance off in full each month by setting up a Direct Debit for this purpose. This is because you get a grace period in which no interest is charged on purchases (never withdraw cash on a credit card as the interest rate is higher, and usually you will begin having interest charged straightaway), so by paying the balance off in full each month, the interest rate on the card becomes an irrelevance – you never pay it!! Better still you are at the same time demonstrating that you can maintain a credit agreement and are therefore building your credit score!

Vanquis Bank Visa Credit Repair Card - £1,000 max limit on opening Aqua Mastercard - Low credit limit. For people who've had credit problems in the past Barclaycard Initial Credit Repair Visa Card starts with a low credit limit

Need to rebuild your credit score? Compare the best credit cards for poor credit and find a flexible friend that will help repair your credit rating.

Prepaid Cards

If you can't get a credit card, there are still other avenues open to you. Prepaid cards don't require you to have a credit check but can offer a means to rebuild your credit rating.

You take out a prepaid card, such as a Kalixa Prepaid which doesn't charge a monthly fee but charges an issue fee instead, or one that charges a monthly fee such as the Cashplus Gold ActivePlus Prepaid MasterCard or the Clearcash Pay Monthly card. The monthly fee (normally in the region of £5 - £10 per month) is treated like a loan. When you reach the end of a set 12 month period, the card provider adds an entry on your credit file that you have honoured a credit agreement. Check out our prepaid cards tip for more information.

A prepaid card can be expensive on account of the myriad of fees charged, and you should only consider this route if you don't trust yourself with a credit card or you cannot get credit anywhere to improve your credit rating.

Take control of your spending! Compare the best prepaid cards for everyday use. Prepaid cards can't get you into debt, so they're great if you've had trouble getting a bank account.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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