‘Bad credit’ credit cards, also known as credit builder cards, can be a helpful tool in improving your credit score if used responsibly.
Here’s how they can contribute to boosting your credit score.
Establishing or Rebuilding Credit History
Your payment history is one of the most significant factors affecting your credit score. By making timely payments on your ‘bad credit’ credit card, you demonstrate reliability to lenders. Consistently paying at least the minimum amount due each month can gradually improve your credit score.
“Bad” credit cards report your payment activity to credit reference agencies (Experian, Equifax, TransUnion). Over time, these positive reports can help establish or rebuild your credit history.
Improving Credit Utilization Ratio
Credit utilization ratio is the percentage of your available credit that you’re using. For example, if your credit limit is £1,000 and you’re using £300, your credit utilization is 30%. Ideally, you should aim to keep this ratio below 30%.
By making regular payments and keeping your balance low relative to your credit limit, you can improve your credit utilization ratio, which positively impacts your credit score.
Demonstrating Responsible Credit Use
Using a ‘bad credit’ credit card responsibly—such as not maxing out the card, paying off balances in full each month, and avoiding additional debt—shows lenders that you can manage credit well. This behaviour contributes positively to your credit profile.
It’s important to use the card wisely and not as a way to accumulate more debt. Keeping balances low and paying off the card regularly helps improve your credit without increasing your overall debt.
Increasing Credit Age and Diversity
The length of your credit history accounts for a portion of your credit score. By keeping a ‘bad credit’ credit card account open and in good standing over time, you can help increase the average age of your credit accounts, which is beneficial for your credit score.
Credit scoring models also favour a diverse mix of credit accounts, such as instalment loans (e.g., mortgages, car loans) and revolving credit (e.g., credit cards). Adding a credit card to your credit profile can improve this mix, especially if you only have loans or other forms of credit.
Correcting Past Issues
If you have a history of late payments, defaults, or other negative marks, using a bad credit credit card responsibly can help offset these past issues over time. While the negative marks won’t disappear immediately, the positive behavior demonstrated with your credit card can gradually outweigh them.
Building Confidence with Lenders
Some ‘bad credit’ credit cards may offer credit limit increases as a reward for consistent, on-time payments. A higher credit limit can improve your credit utilization ratio, further boosting your score.
Additionally, it shows lenders that you’re capable of handling more credit, which can lead to better credit offers in the future.
Important! While ‘bad credit’ credit cards can be an effective tool for improving your credit score, it’s important to use them carefully:
- Watch Out for High Interest Rates: ‘Bad credit’ credit cards often come with higher interest rates. Avoid carrying a balance if possible to prevent high interest charges, which could lead to debt accumulation.
- Avoid Unnecessary Spending: It can be tempting to use the card for unnecessary purchases, but it’s crucial to keep spending within your means. Only charge what you can afford to pay off in full each month.
- Pay More Than the Minimum: If you can’t pay the balance in full, always try to pay more than the minimum payment to reduce your balance faster and limit interest charges.
By responsibly using a ‘bad credit’ credit card, you can rebuild your credit over time, showing lenders that you are creditworthy despite past financial challenges. This responsible use can gradually lead to an improved credit score, which will open up better borrowing opportunities, such as lower interest rates and access to more favourable credit products in the future.
