How the credit builder credit card is making a bounce back

24th June 2010

There is a ‘catch 22’ situation for those who have had their credit scores damaged by the recession, and the high levels of borrowing leading up to the bubble bursting. Those who have damaged their lending reputations can no longer get the credit they need – however, without showing lenders they can manage credit, their ratings will never go up.

This situation is usually made worse by the fact that even applying for credit can damage a person’s reputation further – mainly because declined applications show lenders a person is a high-risk consumer. With different lenders having different methods for screening potential clients, companies can be fearful that another lender may have found a bad characteristic in a client that they have missed – meaning results matter.

Britain needs to spend money and consumers need to get back into the open: economists have said that this is the only way that the country has any prospect of getting back on its feet. As a result, credit builder credit cards have become more and more popular in today’s market, being offered by a number of companies. This is all in the hope that this will alleviate the problems that many consumers have been experiencing in an era which has seen lending terms tightened to prevent toxic assets.

Of course, credit builder credit cards do not necessarily offer their owners an easy ride. You may find that the annual percentage rates of the money outstanding on these cards (shortened to APR), can be extremely high – mirroring how risky lenders see borrowing to somebody with a low credit rating. However, there is a get-out clause: if you are responsible with your expenditure and your levels of repayment, you can see your credit rating improve and lenders become more open-minded to giving you cards with more generous terms in future.

The last thing you want to do is to consider this card as a way to consolidate your debts. It can impractical to use credit builder credit cards for this purpose in two ways. First of all, the limits for credit on these cards is usually too low to handle a substantial amount of your debt, with £500 usually being the amount you can place on the card before ‘maxing it out’. Secondly, the extortionate rates of APR mentioned before can mean any unpaid debts at the conclusion of a calendar month can gather extortionately, and you could make your whole situation worsen as time goes on.

It can be a great way for you to get your confidence back, as well as the confidence of your lenders. However, take it one step at a time: the consequences can certainly be dire if you act irresponsibly.

Posted in Credit cards