Credit builder cards are designed for people with bad credit or no credit history. They are easy to get approved for, but they come with a catch: incredibly high interest rates, often exceeding 35% APR.
If used incorrectly, they will trap you in expensive debt. If used correctly, they are the fastest way to rebuild a damaged credit score. Here is the exact strategy.
The Strategy
- Keep it small: Use the card for just one or two small, essential purchases a month. A tank of fuel, your weekly groceries, or a Netflix subscription.
- Never withdraw cash: Withdrawing cash on a credit builder card incurs immediate, daily interest charges and leaves a negative marker on your credit file. Never use it at a cash machine.
- Set up a full-balance Direct Debit: This is the golden rule. Set your Direct Debit to pay the full statement balance every single month. Do not set it to the minimum payment.
Why this works
Because you are paying the balance in full every month, you will never pay a single penny of that 35% interest. You get the benefit of borrowing for free.
Meanwhile, the card provider reports your perfect payment behaviour to the credit agencies every 30 days. Lenders see that you are managing a credit facility responsibly, and your score will begin to rise. After 6 to 12 months of this strategy, you will likely qualify for standard, low-interest credit cards.