What are Credit Building Credit Cards?
A credit building credit card is planned for helping individuals who need to develop a record of loan repayment without any preparation or recover their FICO assessment on target in the wake of being declined credit.
There can be a multitude of reasons for not being eligible for a normal credit card which is discussed below.
FICO is an international standard that is set by banks and other financial institutes to gauge where your reputation stands in terms of finances and monetary value. FICO scores start from 300 and go up to 800.
The higher your score is, the more you qualify for in terms of loans and better financial deals. People who have a score lower than 600 falls into the poor credit score category.
It becomes exponentially harder for you to obtain a loan unless you do something drastic. Improving this score is a tough job, but not impossible.
Having a bad credit score is a severe problem for many budding entrepreneurs and people who have a financial emergency. It might sound unusual, but credit building cards are an easy way out of such a situation.
Many people who are in critical need of the money or need to invest someplace reliable are faced with issues because there is a lack of a substantial income or revenue that is recognized by financial institutions.
In such cases, credit building credit cards can be used to build a solid history of credit repayment.
They can be a decent decision for individuals hoping to improve their FICO assessment, or for individuals who don’t fit the bill for standard arrangements.
This article is here to clarify many factors regarding credit building credit cards. We hope it should help you understand who is eligible for credit building credit cards and the technicalities surrounding them.
It should also help you pick the best choice that is tailor-made to suit your purposes and needs because choosing the wrong credit building credit cards can further ruin your financial reputation should you choose one that is not suited for your situation.
What qualifies you for credit building credit cards?
Many people have poor credit ratings even without doing anything wrong. If your rating isn’t great, there are a couple of various reasons why this may be:
- You’ve had issues with credit repayment previously.
- Your salary or business income isn’t sufficient to get the charge card you need.
- You have a poor record of loan repayment.
- There’s an unpaid bill under your name.
- You have a court judgment against you.
- You aren’t on the electoral roll.
Getting credit building credit cards can help improve your FICO rating. You can do different things to improve your score such as taking care of bills on time and making the minimum payments consistently on existing credit cards.
How do they work?
Credit building credit cards typically have low credit limits and a high APR (Annual Percentage Rate). You would never give a loan to someone, especially if you knew that they had a poor track record of paying back their debts.
Banks use the same principle to lessen the danger of losing cash on the off chance that customers can’t repay them. They can predict your trustworthiness by checking your credit record.
A high APR implies you’ll pay a lot of interest for late payments, so it’s critical to take care of your card in full every month.
With credit building credit cards, you may need to manage your money more carefully than you already are.
Can a credit building credit card improve my credit rating?
Maintaining credit building credit cards can assist you in building a positive record as a consumer.
By making your repayments on schedule and in full, and reducing unnecessary spending as much as possible, you can begin to look like a great candidate to financial institutions.
And your reputation increases considerably, making you eligible for better deals and promotions.
Therefore, you should see your assessments improve, and you might have the option to build your credit limit. Remember that the amount you get your credit checked can influence your score.
So, if you want to have a better credit score, you need to apply for a larger credit limit. Then you won’t need to submit another application anytime soon.
A few hints for dealing with credit building credit cards:
- Keep away from late instalments, as you might be charged an expense, and your credit limit may decrease.
- If you can’t cover the payment, make at least the minimum payment amount – missing one can influence your future credit applications and will look very bad on your profile.
- Set up an automatic charge to make the month to month payments as they show up on your account.
- Get text or email notifications so you won’t miss when a payment is due.
How to get a credit building credit card
You’ll have to apply for a credit card and get approved. The loan specialist will work out your FICO rating to confirm whether to lend to you or not. They utilize their strategies and measures to do this.
As a rule, they consider data on your credit report and application to make a decision.
Credit building credits cards are commonly intended for individuals with low scores. In any case, this doesn’t ensure you’ll be approved, so you might need to improve your score before applying if you can.
Each time you apply for credit, a hard check will be recorded on your credit report. This can briefly bring down your FICO assessment, making it harder to get approved by other banks.
Along these lines, it’s critical to space out your applications for a while if one doesn’t work out.
It’s also helpful to check your qualifications for credit building credit cards before you apply. You can see the application requirements when you compare credit cards.
What to remember before selecting
Be very cautious when selecting your credit building credit cards because it could turn out to be more of a liability than an asset.
It is important not to get carried away because opting for a difficult repayment program with high interests or applying for more than one card at a time can push you back many rungs on the financial ladder.
Try not to apply for more than one
By applying for more than one at a time, you are increasing the chances of not being able to pay back your balance on time. Or you may miss out on the deadlines due to technicalities.
That can push your credit rating even further back than where it currently is.
Check your qualifications
One method to keep away from hard checks is to utilize a qualification checker that lets you see a scope of various charge cards – and the probability of being approved.
Thus, you can consider every one of your choices before you submit an application.
Each card may offer various rewards and advantages, regardless of whether it’s included banking privileges, access to follow your financial assessment, or 24-hour client assistance.
Do your research beforehand to find out which package suits your needs best.
Overspending: Credit cards can make life simpler. However, they can make overspending simpler also.
With a charge card, you’re going through cash you don’t have yet. In case you’re not cautious, this can rapidly prompt startling debts.
Identity theft: Credit cards (and other electronic types of payment) have risks involved. Credit cards can be taken, their numbers can be replicated, and they can be utilized to take your cash and identity if you choose the wrong source to obtain a credit card.
Increase and decrease: If you carry a balance on your credit card from month to month, it tends to be simple for charges and interest to pile up.
Numerous individuals don’t expect credit cards to be doors to additional debt, yet in case you’re not cautious, that is actually what occurs. Be careful not to further ruin your financial reputation by mounting debt onto your plate.
Interest rates: Be very careful when selecting the right credit building card because if you choose the wrong one, the interest rates can end up costing you a lot of money over time.
That can be detrimental to your reputation as paying the interest rates can be a daunting task.
If you tick any one of the top requirements and are unable to apply for a proper loan or credit card due to your previous financial record, credit building credit cards is one of the safest routes you can opt for. To ensure that your financial statements and bank records are up to the mark.
There are other options you can consider, but they may not be as reliable and efficient as a credit building credit card. You may also not be eligible for many of them considering how you already have a poor credit score.
By doing proper research and by weighing all of the factors, you can make a better choice in deciding which credit building credit cards are going to do you favours, and which may end up costing you.
Do you get charged every time you use your credit card?
You won’t get charged immediately every time you use your credit card to make a purchase. But when you use your credit card you may be charged a fee if you withdraw cash at an ATM.
You’ll also be charged interest if you don’t make your credit card bill payments on time.
Does having several credit cards hurt your credit score?
Having multiple credit cards won’t hurt your credit score if you are able to keep your spending within your budget and you make your bill payments in full on time.
You have to know your ability to organize your finances and track multiple credit cards.
Is it better to cancel unused credit cards or keep them in the UK?
It is better to actually keep your unused credit cards open so you have a longer credit history and amount of credit available to you.
This will potentially raise your credit score and help you if you apply for a loan in the future.
Is it bad to pay your credit card twice a month?
It is not bad to make multiple credit card payments every month.
The most important thing is that you do not exceed your credit limit and you make your payments on time to avoid interest and fees.
How many is too many credit cards?
You can have as many credit cards as you feel you will use. However, try not to apply for more than one credit card every six months as this could harm your credit score.