Rebuild your score with a credit-building card

By Benjamin Salisbury

A poor credit record can harm your chances of getting a mortgage or even a mobile phone contract. It also means that, if you do successfully apply for a credit product, you likely will pay higher interest rates.

Fortunately, there are ways to remedy this situation. In addition to making payments in full and on time, you can apply for a credit builder credit card to gradually repair your score, then move on to a credit card with a better deal and higher credit limit.building-credit

Why is it important to have a good credit record?
At some point, you will need to access financial products, such as a mortgage, personal loan, credit card or even a mobile phone contract.

"Without a credit history [or with a bad record] you'll find it more difficult to access a range of goods and services, from traditional credit products such as loans, cards and mail order, to utility accounts and insurance," James Jones, head of consumers affairs at Experian, said in an emailed response to questions.

Even if you do secure a loan or credit card, a shaky credit record bans you from getting the best deals.

"Your credit history can also be used to help check your identity, providing seamless access to a whole range of goods and services, particularly online," said Jones.

First step: check your credit report
If you find you are being turned down for credit on a regular basis, you need to check your credit report to find out why. Though the likely cause is a bad payment history (missed or late payments) or a default, it may be that there is a mistake on your credit report. If that's the case, you can take steps to have the mistake removed from your credit history.

You should check your report regularly, at least once a year.

You can get a free Experian credit report by signing up for a 30-day trial of Experian CreditExpert - which allows you unlimited access to your credit report for a fee of £14.99 a month, once the free trial expires. According to Jones, you can also request a copy of your statutory report online by paying a one-time fee. Many services, he explained, come with free trials for new consumers.

"Either way, you'll see your borrowing record over the past six years and, depending on which service you use, receive advice on steps you might be able to take to improve it," Jones said.

Choosing, applying for a credit-building card
There are a number of good credit-building cards on the market. These cards allow people who have damaged credit or no credit rating at all to access credit. By using one of these cards (and paying off your balance in full each month), you can improve your credit rating.

"Credit builder credit cards are designed for those people who might find it difficult to obtain credit, often through no fault of their own, and wish to improve their credit rating," Paul Rodford, head of consumer affairs at Vanquis Bank, said in an emailed response to questions. "For example, you could be self-employed; work part time or have a low income; have never had credit before or may have been turned down in the past."

Credit builder cards usually have lower limits than normal credit cards and higher interest rates, which is another good reason to pay off the balance in full each month, lest you get hit with a huge interest payment.

For instance, Barclaycard's Initial credit card provides a credit limit between £150 and £1,200, and offers 0% interest on purchases for three months (34.9% APR thereafter). If you make repayments on time and in full each month, Barclaycard will review the limit after 12 months and may reduce your APR and increase your credit limit.

Vanquis Bank's Aquis credit card comes with a credit limit of up to £1,000 and an APR of 29.8%. Vanquis Bank will review your account after every fourth statement, and may increase your limit after each review, allowing you gradually to build up to a card with a high limit while proving that you can handle payments.

Lloyds Bank, Aqua and Capital Bank all offer similar credit card deals that could help you rebuild your credit history. Ask your bank what credit cards they may offer to customers with no or low credit scores and research your options before choosing a card.Once you successfully apply for a credit builder credit card, it is vital that you manage the card effectively to improve your credit rating by paying off the balance in full. You can then look to improve it further by taking out other forms of credit and managing them properly.

In addition to applying for (and carefully managing) a credit-building card, Rodford said there are other steps you can take to improve your credit rating.

"Make sure you are registered on the electoral roll at your current address, prepare a budget and carefully manage your expenses, always pay your bills and any credit you have taken out on time," he said. "Make sure you don't exceed your credit limit and always provide correct information about yourself when you apply for credit. Over time you'll then be able to build or improve a credit history and be in a position to apply for more competitive ‘regular' credit card deals and a brighter financial future."

See related: The cost of a poor credit rating, Fact or myth? Test your credit rating knowledge

Published: 10 December 2014