You may have heard the term credit builder credit card, but can taking out credit really improve your credit rating enough for a mortgage application? We explain how you can use a credit score builder card to help you boost your credit rating, and what you need to know before you rush out and get one.
Can a credit builder card improve your mortgage eligibility?
In theory, yes, a credit builder credit card could contribute to the improvement of your chances of getting a mortgage. However, it does depend on your current circumstances and how you use it.
If you’ve never used any form of credit, you will likely have a low credit score. Whilst this is not the same as having bad credit because you’ve failed to repay your credit agreements, it can still impact the way mortgage lenders see you. Never having credit can make it difficult to judge how you would manage a large debt like a mortgage loan, so lenders can sometimes be cautious if you’ve never had a credit card, loan, hire purchase, etc.
In this scenario, a credit builder card can help you improve your credit rating, but this is reliant on you using it responsibly. It may also help those with bad credit to start rebuilding their credit score after a hit, such as a CCJ or IVA, but again, how you use the card is key to your success. You’ll need to ensure you pay off the full balance each month, and never exceed your spending limit.
Are they worth it?
Credit builder cards may be worth it for some people, but as with any financial product, there are pros and cons involved:
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Advantages |
Disadvantages |
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Typically have easier criteria to meet due to being available to low-credit applicants |
Typically have much higher interest rates than other credit cards, meaning they are expensive if you don’t repay the full balance each month |
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Can help you to improve your credit score when used responsibly |
Usually the credit limit is quite low |
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Can help to demonstrate to mortgage lenders that you act responsibly with financial borrowing |
If you’re recently bankrupt or have any other serious credit issues, they are unlikely to make much difference to your credit score |
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Your purchases are protected by the Consumer Credit Act |
You may get into further financial difficulty if you cannot afford the repayments |
Kellie Steed - Content Writer
Which providers offer credit builder cards?
The best credit builder credit card for you will depend on why you need one and how you intend to use it. However, here are a few lenders offering this type of card:
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Tesco Foundation credit builder card: Offers borrowing of up to £1200 at 29.9% APR and allows you to collect Tesco points on spending
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Virgin Money credit builder card: Offers borrowing at 23.9% APR on balance transfers with no fees
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Capital One credit builder card: offers borrowing at 34.9% APR with no membership fee
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Barclays credit builder card: offers borrowing of up to £1200 at 33.9% APR with no fee on balance transfers for the first 6 months
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HSBC: offers credit builder cards for spending, balance transfers, and students. APRs range from 18.9% for students to 29.9% APR for everyday spending
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Vanquis credit builder credit card: offers a credit limit of up to £2500 at 37.9% APR
Take-home points
If you have a low credit score and are looking to take out a mortgage, a credit builder card can certainly be one piece of the puzzle in making yourself a more appealing borrower. However, keep in mind that this is not the only way to improve your credit score, and there are a few ways you can do this for free.
It’s also worth noting that there are lenders willing to support bad credit mortgage applications, especially where the credit issues are less severe, such as a few missed or late payments. No matter what your credit issues are, our brokers can support your goal to secure a mortgage, whether you can find one with a bad credit mortgage lender, or need our help to improve your credit rating first.
Reach out to book your free initial chat today.
