Make a fresh start in 2010 with one of these special 'credit builder' cards, specially designed for those with a bad credit history or even no credit history at all.
If you've ever applied for a mortgage or a loan, you'll know how important it is to have a good credit record. The better your credit rating, the cheaper it is to borrow money. So a good credit rating could potentially save you hundreds, if not thousands, of pounds a year.
The question is: how do you build up a good credit record? Providers of credit builder cards would have you believe that their credit cards can help. And it's true these cards can provide a helping hand to those who already have acquired a less than perfect credit history. Equally, those with no credit history at all can use these cards s a solid starting point.
But they're not for everyone. Here's why.
Dispelling the myth
The first thing to remember is these cards aren't any different from other credit cards. They don't offer special ways of improving your credit rating, nor will they magically undo any wrongs of the past.
But if you make payments on time, it will show other lenders that you are a responsible borrower, and they will be more likely to trust you with credit in the future.
You'll also benefit from around 56 days interest-free credit. So, if you buy something on 6th January, you won't have to pay the money back until 3rd March, interest free.
This rule only applies to purchases. Cash advances, where you take money from an ATM, are not included, and so you will be charged interest from the day you withdraw the money.
You should also ensure that you pay your bill in full each month. If you pay anything less than the full balance, your credit card provider will charge interest on the full balance owed.
With some interest rates approaching 40% APR, it's not a good idea to leave even a penny owing on your statement.
And whatever your credit history, get on the electoral roll. This is absolutely vital, as lenders use this as part of their fraud checks. If you're not registered, they may reject you outright.
Here's what some providers are offering at the moment:
| Provider and card | APR (typical) | Conditions |
| Barclaycard Initial | 27.9% | Credit limit from £250 to £2000. Not suitable for people with county court judgements (CCJs) or IVA agreements made within the past five years |
| Capital One Classic Card | 34.9% | Initial credit limit from £200. Capital One also considers applications from people with CCJs |
| Vanquis Bank Visa | 39.9% | Initial credit limit up to £1,000. Review after 4th statement. |
As you can see, the APRs offered by these providers are often double that of standard providers.
Barclaycard Initial provides the best value card, which has a typical APR of 27.9%. It offers a credit limit of up to £2,000, provided you have no history of bankruptcy or any CCJs against you in the past five years.
Alternatively, the Capital One Classic Visa is also ideal for those starting afresh with credit. It promises a low, easy to manage credit limit from £200, and will raise this after four months if you manage your account responsibly.
Its typical APR is 34.9%, but it will consider those with CCJs, as long as you have some credit history.
Cold, hard, numbers
And as I said earlier, these cards should not be used for borrowing, even over the short term.
If you borrow just £1,000 using a card which has an APR of 34.9%, and pay off £50 each month, using a credit card calculator I've worked out it will take two years and five months to pay off the debt, and just under £450 in interest payments.
If, on the other hand you're reluctant to apply, there are also pre-paid cards such as the Cashplus Prepaid Gold MasterCard, which help strengthen your credit in a different way. These cards require no credit check, and are better for those who have been bankrupt or have a CCJ. You can read about this in A new way to repair your credit rating.
One final word of note. If you're rejected for a credit card, don't keep applying for credit.
Every credit application you make leaves a footprint on your credit report that can be seen by other lenders. Too many searches, and they may think you're taking on more credit than you can handle, and your application will probably be rejected.
You can get hold of your credit report from credit reference agencies Experian, Equifax and Call Credit for £2 per copy. You can also get a free report through lovemoney.com.
And remember, credit builder cards were never designed to perform miracles. But use them right, and they should put you on the right track.
Get a free credit report through lovemoney.com.
More: The secret truth about your credit card / Use this credit card to slash your debts!