Build your credit history while you save with LOQBOX
- Choose what you want to save – from £20 to £200 a month
- Build your credit history with the credit reference agencies
- Leave with an improved credit history, plus all your savings
Secured credit cards are designed for people with bad credit who want to build their credit score. These credit cards require a deposit, referred to as a “security sum”, which is held by the card issuer while you have the card, and returned to you when you close the account. Your credit limit is generally equal to the security sum that you put down when you apply.
Like any credit card, you’ll be required to make minimum monthly repayments towards any outstanding balance, and you’ll incur interest on any unpaid balance. However, there is an interest-free period if you pay your account off in full each statement period. Using the card to withdraw money from a cash machine will incur interest charges immediately.
If you’re offered a secured credit card, you’ll need to pay the security sum upfront before you receive the card. Your security sum can’t be used to make repayments, but if you fall behind on your minimum repayments, the card issuer could use some or all of your security sum to pay off any outstanding balances on your account.
These days, secured credit cards are mostly available across the pond in the US and are no longer common in the UK, though Capital One has issued secured cards in the past.
With a secured credit card, your monthly repayments are reported back to credit reference agencies, so provided you use your secured card responsibly (staying within your credit limit, making all repayments on time etc.) it’s likely to have a positive effect on your credit score. Using a credit card rather than a debit/prepaid card also gives you access to purchase protection under Section 75 of the Consumer Credit Act for items individually worth £100-£30,000.
Secured credit cards can be a step in the right direction, but only if you have the money to pay the deposit in the first place. Once you’ve become a master of your credit handling capabilities and begin to see improvements in your credit score, you may no longer need to be tethered to a card with a security deposit – meaning you can apply for an unsecured card.
Having a poor credit rating is more common than you might think. Whilst bad credit can reduce your chances of getting much-needed finance, the good news is that you have options for restoring your credit rating and demonstrating to lenders that you are responsible with money.
These cards are designed for people with a damaged or limited credit history, but unlike secured cards, they don’t require money upfront. You build your credit score by simply using the card responsibly, and in many cases, can benefit from credit limit reviews after just 4-6 months. You’ll need to go through a credit check as part of the application process, but the card issuer won’t be expecting perfection. These cards do charge a higher interest rate than mainstream cards (due to the higher perceived level of risk involved) so you should aim to pay off the balance in full every month.
With a prepaid card, you can decide how much money to “load” it with upfront, but there are usually a few limitations (such as an overall maximum, and a maximum amount you can withdraw in one go). Essentially, think of a prepaid credit card as a direct alternative to having cash in your wallet, which you use for day-to-day spending. Prepaid cards don’t normally have any effect on your credit record, because there’s no credit involved.
However, a few innovative prepaid card issuers, such as Cashplus, do offer a credit-building service, but it comes at a cost. They do this by essentially lending you a year’s worth of account fees, which you’ll then repay in monthly instalments.
There are plenty of innovative fintech firms around that are always on the lookout for new ways to help people build their credit scores. Services like LOQBOX allow you to set up a direct debit to save a regular amount each month, which is then treated as if it were a finance repayment, with each repayment being reported to a credit reference agency.
There are also schemes such as Rental Exchange which allow your rent payments to be reported back to credit reference agencies and establish that you can responsibly meet regular payment obligations.
Yes, you’ll almost certainly need a credit check in order to get a credit card. but the good news is that almost all lenders will let you use an online “eligibility checker” before you apply. This quick check will provide you with a good indication as to whether or not you’ll get approved for the credit card you are interested in.
What’s more, completing this initial eligibility checker won’t have any impact on your credit score, as it’s considered a “soft” credit search. Eligibility checkers can be extremely helpful for people with bad credit to gauge their likelihood of getting a certain credit card, but it’s not a guarantee that you’ll be approved.
If you’ve got a bad credit rating and are looking at specialist credit cards, consider the following factors when comparing your options:
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