Credit Builder Credit Cards – Using them wisely
Recently on Money Bulldog we discussed the predicament most newbies face when it comes to getting credit. Most lenders prefer you to already have a decent credit score before they’re willing to lend to you. Yet to get a decent credit score someone is going to have to allow you to borrow money. Enter credit builder credit cards.
As much as none of us like the idea of cards with a higher interest rate than usual, when it comes to building a credit score credit builder credit cards are one of the options available in your quest for trust from financial institutions. Although these cards do offer a good opportunity for credit newbies to build their credit score, they can also be problematic if you don’t use them wisely. So here are my tips on how to use credit builder credit cards wisely.
Use them for planned purchases only
Many guides you read will suggest that you use your card to make purchases and then pay those purchases off in full at the end of every month. Whilst it is good advice to pay your new credit builder credit card off in full at the end of every month, I would take things a little further. I would encourage you to leave your new card out of your wallet or purse completely. It’s easy to get carried away when spending on your first credit card, even if you don’t mean to. Rather than go out and use your card to buy coffee and mascara, why not instead use it to buy one pre-planned purchase each month. This might be a present or something for yourself that you are desperately in need of. Whatever it is, stick to the one pre-planned purchase and then pay that off in full at the end of each month. Some of the most popular credit builder cards offer interest free periods of around 56 days, so as long as you stay disciplined and pay your new credit builder card off in full each month, you should never find the need to pay interest on your purchases.
Avoid using the cheque or bank transfer option
In the same way that spending on card is much easier than spending in cash, believe it or not, writing out a blank cheque can be even more enticing than spending on your card. Do your utmost to avoid using the cheque or bank transfer options when using your new credit building credit card. You will be much more likely to spend more than you can afford to repay using these options, leaving you with interest to pay on the outstanding balance.
Don’t bank on a balance transfer
I have known people who have done this in the past. They take out a credit building card and run up an outstanding balance presuming that they will then be able to transfer that balance when they get their new credit card with a more attractive rate. This is unwise to say the least. Firstly, credit scores are based on a wealth of factors, not just your very recent credit history. Although a credit builder credit card will help you to build a better credit score, it may still take a while for you to be viewed as a prime customer in the eyes of other lenders, allowing you to transfer a balance. Another thing many people don’t know is that not all lenders take part in the balance transfer scheme. If you’re unable to transfer a balance from the card, then that could leave you pretty snookered if that was your plan all along. There are other inventive ways to shift a balance but the better idea is to not to run up a long term balance in the first place, which leads me to reiterate the most important point one final time.
Pay them off in full every month
I’m starting to feel like a broken record here but it’s so important to pay your card off in full at the end of every month. Even small amounts like £30 or £40 can quickly build up over time.
So if you want to give yourself the best chance of building a solid credit rating, be sure to stick to these basic rules of successful credit builder credit card use.