Competition for the top slot
Last week, Vanquis Bank launched its Aquid Via Card, which was market-leading in both the credit builder and bad credit best-buy tables. The card carries a representative APR of 29.8% (variable).
But Capital One was quick to react by launching its new Visa card with an even lower representative APR of 28.9% (variable), bumping Vanquis Bank’s offering into second place.
But regardless of the card, applicants should tread with extreme care.
Depending on your circumstances and credit history, the rate offered on Vanquis Bank’s Aquis Visa card can actually reach the eye-watering heights of 59.9% (variable).
That's why, whichever credit builder credit card you apply for, it's crucial to use it to your advantage by paying off your balance in full.
How do credit builder cards work?
If you have struggled with debts in the past and your credit score has been affected, you will be a lot less likely to be accepted for a mainstream credit card. That’s where credit builder (and bad credit) credit cards come in, as they are available to a wider audience, including those with poor credit scores.
Once you are up and running and clearing your balance on time every month, a credit builder card can help to repair your credit score as you are able to prove you are a responsible borrower.
However, if you do not pay off the balance and start to pay interest, these cards can leave you playing with fire. Credit builder card providers consider their customers to be more likely to default on payments, so unsurprisingly interest rates are much more expensive. Even representative APRs (the rate for which 51% of successful applicants must qualify) can be as high 39.9% (variable).
The cards also tend to come with lower credit limits than you might be offered on a mainstream credit card.
How should the cards be used?
The only way to use a credit builder card is to your advantage – which means it’s essential you always pay off your balance in full by the agreed payment date. Failure to pay on time will not only result in some very expensive bills but it could further damage your credit score.
What are the best credit builder cards?
Next in line is the new Aquis Visa Card which comes with a representative APR of 29.8% (variable). Applicants are offered an initial limit of up to £1,000 which, over time, could be increased to a maximum of £3,000. You can also manage your bills online. Existing holders of credit cards from Vanquis Bank card will not qualify.
Barclaycard's Initial credit card is next in line in the credit builder best buys, carrying a slightly higher representative APR of 29.9% (variable). However, this card is mainly targeted at borrowers who are applying for credit for the first time and are looking to build a credit profile.
Credit limits are low at between £250 and £1,000 and - because of the nature of the card - you will probably be turned down if you have County Court Judgments (CCJs) against you, an Individual Voluntary Arrangement (IVA) that dates back five years or have ever been made bankrupt.
The Capital One Classic credit card is more geared towards borrowers with a chequered, rather than non-existent, credit history but comes with a higher representative APR of 34.9% (variable). It offers 56 days' interest free on new purchases if you pay your statement in full and on time every month.
However, the representative APRs on any credit builder credit cards should, ideally, be irrelevant. This is because paying off your balance in full every month will mean avoiding paying interest altogether. Setting up a direct debit from your bank account to your credit card provider is the best way to ensure this.
You can compare a range of credit builder credit cards on our credit card channel.
Other ways to repair your credit
There are ways to start repairing your credit score without having to spend money. First off, check that you are signed up to the Electoral Roll. If you’re not eligible to vote because you’re a foreign national, send proof of your residency to all the credit reference agencies, such as Experian and Equifax.
Check that your credit report is accurate and free from mistakes by applying for a copy online for a small fee. If you don’t recognise or disagree with an entry, notify the credit reference agencies and ask for it to be corrected.
Sticking to your credit limits and always paying what you owe by the agreed payment dates shows lenders that you are a responsible borrower and should also improve your credit score.
For more details, read Jess Bown’s article: Five ways to boost your credit score.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct