Credit Building > How do credit builder balance transfer cards work?

How do credit builder balance transfer cards work?

Wollit Team3 minute read · Updated 30th June 2024

Credit builder balance transfer cards allow people to move debt from one credit card to another, usually with the goal of paying off that debt by taking advantage of a period with a low or zero interest rate.

These cards are meant for people with bad credit or even no credit at all. As such, they come with higher interest rates and lower credit limits.

Transferring balances to a credit builder card can give you a reprieve from interest charges and simplify how you pay off your cards. This can help quite a bit if you’re juggling multiple cards with different payment dates, as you can make it easier to avoid accidentally missing a payment and hurting your credit score even more.

What is the difference between a credit builder balance transfer card and a regular balance transfer credit card?

A credit builder balance transfer card works like a regular balance transfer card. The main difference is that eligibility requirements are a bit more flexible. However, this also means that the credit builder version has a shorter interest-free period, higher APR, and a lower credit limit.

How can a balance transfer credit card help me build my credit history?

A balance transfer credit card can help build your credit history and improve or repair your credit score in a few crucial ways.

First, it can help you lower your credit utilisation. This is the percentage of available credit you’re using, and a lower ratio can boost your credit score.

Second, having multiple credit card bills to pay each month increases the chances of missing payments. A balance transfer card allows you to consolidate your existing credit card debt into one monthly payment. This can make it easier to pay on time and avoid late payments that can hurt your credit score.

Third, the 0% APR promotional period on many balance transfer cards gives you time to pay down your debt without accumulating additional interest. Paying down balances over time can improve your credit utilisation and mix, which are factors in your credit score.

However, it’s important to remember that applying for a balance transfer card can initially cause a slight dip in your credit score.

This is because when you apply for credit, the lender will run a hard check on your credit report. This hard check can affect your credit score; it’s visible to other lenders and stays on your credit report for up to two years.

What are the pros and cons of a credit builder balance transfer credit card?

A credit builder card can be a great tool for helping you maintain or even improve your credit history. Here are some of its advantages:

Like any other credit card, a credit builder balance transfer card reports your repayments to the credit reference agencies, building your credit history and improving your credit score over time.
It can help you save money on interest charges, especially during the low or zero-interest-rate promotional period.
Having just one payment to make each month can also improve your budgeting and perhaps even reduce stress.

Now for the disadvantages:

Most credit builder balance transfer cards come with balance transfer fees, usually another 3% to 5% of the amount transferred. So, for a credit card debt of £1,000, you might have to pay another £50 just to consolidate the debt.
Qualifying for a credit builder balance transfer card usually requires a slightly better credit score than a regular credit building credit card. If your score is poor, you might not be eligible for one.
There is a risk that you might be tempted to use the zero-interest period and get into even more debt.

In short, credit-building balance transfer cards are not a free option. Yes, they offer a period of zero-interest repayments, which can be a real reprieve if you’re facing significant credit card debt.

However, the additional fees they charge, plus the fact that you need a clear plan to pay off this debt before the promotional period runs out, mean that you should think twice about getting one of these cards.

In fact, a better option is to try to pay for your existing credit cards without a balance transfer card. This will help you save on fees and improve your score, giving you access to better balance transfer cards, some even with no balance transfer fees at all or with much lower APRs.

To improve your credit history faster, consider downloading a credit-building app instead.

One such app is Wollit. Unlike a credit card, Wollit works by reporting a fixed fee subscription as a loan repayment to the credit agencies.

This lets you build your credit history without excessive fees or the risk of accumulating more debt. As your credit score improves, you can apply for much better credit cards in the future.