If you have had problems with your finances in the past, you may have a poor credit rating. Your credit rating affects applications for loans, credit cards, mobile phone contracts, car insurance and mortgages. Poor credit ratings mean you will either be declined when you apply for finance, or you will only be offered credit at high interest rates. There are ways to rebuild your credit, it might take some time, but it can be done. Believe it or not, one of the ways to build up your credit rating is to get a credit card, but you must bear in mind the following points.
Before You Get a Credit Card
Check your credit file first
There are three main credit agencies in the UK: Experian, Callcredit and Equifax. They can’t charge more than £2 to send you your file and it is worth checking all three. Read the documentation carefully to make sure there are no mistakes on the file, or that your name has not been used to obtain credit fraudulently.
If there are any mistakes or fraudulent activity, make sure this is corrected as it will affect your ability to get a good APR.
APR on credit cards varies. The lower the APR, the lower the interest rate. It is possible that if you’re offered a credit card it will be at a high interest rate as someone with a poor credit score is considered a higher risk.
Building Your Credit Rating with a Credit Card
Looking for credit cards
When you’re looking for a credit card, try not to apply for more than one at a time because all applications show up on your credit file. Too many enquiries at the same time will not look good to a lender.
Look online and pick out a few cards that suit you. For quotations, you can ask the companies directly which makes it a credit enquiry rather than an application. This means that you will be able to see it on your credit file, but lenders won’t. You can also use a broker who will advise on whether you stand a chance of being accepted.
Pay your card off in full
Only meeting the minimum payment level and leaving the rest of the debt on the card will not help your credit score. You must pay the card off in full each month without fail. Not only are you showing a future lender that you are being responsible, it also ensures that you aren’t paying any interest. This means that even though your credit card has a high APR, by paying it off each month you are getting your credit interest-free so the APR shouldn’t matter.
It might be tempting to use your card to buy things that you can’t really afford. If you’re serious about building up your credit score, you can’t use it like a credit card. For example, you should use it once or twice a month to pay for your weekly shop or energy bills. Keep the amount in the bank that you would normally spend, pay by card and then use this money to pay the card off. Don’t spend any more than you have put away.
Don’t max out the card
Whatever you decide to use your card for, don’t spend up to the limit; even if you pay it off. It is far better to keep credit card spending low, never miss a payment and use the card regularly. It will take time, but gradually your credit score will improve.