What is a credit building prepaid card?

Key takeaways

• Credit-building features may turn 12 months of account fees into an interest-free payment plan, with your repayments reported to credit reference agencies.

• Paying on time could improve your credit history, but there’s no guaranteed increase or fixed timeframe.

• Missing or making late payments could harm your credit record, so only sign up if you can afford the full commitment.

• The feature doesn’t provide extra money to spend and isn’t the same as a credit card.

Compare accounts with credit-building features – ordered alphabetically A–Z

🚩 Protection for money held in the account depends on the provider. Eligible deposits with a UK-authorised bank may be protected by the Financial Services Compensation Scheme. Money held by an e-money or payment provider isn’t FSCS protected, although safeguarding rules apply. Check the provider’s terms before applying.

What is a credit building account?

Some current accounts let you add a feature designed to help build your credit history.

The provider typically treats a year’s worth of account fees as an interest-free loan or payment plan. You don’t receive any money from this arrangement, but your monthly payments are reported to credit reference agencies.

Paying on time could strengthen your credit history. However, missing a payment could have the opposite effect.ry.

How do credit-building accounts work?

Although terms vary between providers, they generally work like this:

• You open an eligible current account and activate your card

• You add the credit-building feature and commit to paying the account fee for a set period, usually 12 months

• You pay the monthly account fee on time

• The provider reports your payments to one or more credit reference agencies

• This payment history could help improve your credit record over time

Check the total account cost and any other charges before signing up. You should only take out the feature if you’re confident you can make every payment.

What are the benefits of using a credit-building account?

Making regular, on-time payments could help you establish a positive credit history, particularly if you have a limited credit record or have experienced financial difficulties in the past.

Some providers don’t charge interest or a separate fee for the credit-building feature, although you’ll still need to pay the account’s monthly fee and any other applicable charges.

These accounts can also include budgeting and spending tools. However, improving your credit history isn’t guaranteed and may take time. Missing or making late payments could damage your credit record instead.

Will my purchases be protected?

Purchases made with a debit or prepaid card aren’t covered by Section 75 of the Consumer Credit Act.

However, you may be able to ask your card provider to recover your money through chargeback if a purchase is faulty, doesn’t arrive or the retailer goes out of business. Chargeback isn’t a legal right, and time limits and other conditions apply.

Check your credit rating

You can check your credit report with Experian, Equifax or TransUnion. Providers don’t necessarily report to all three agencies, so it’s worth checking which agencies your account provider uses.

You can also monitor your credit through MoneySuperMarket’s Credit Monitor.

As your credit history improves, MoneySuperMarket’s Eligibility Checker can show you which credit cards you’re more likely to be accepted for.