Credit Building > What to do with a credit building card?

What to do with a credit building card?

Wollit Team3 minute read · Updated 3rd July 2024

If you’ve applied and got accepted for a credit building card, congratulations: you now have a great tool that can help you build or even rebuild your credit history.

But you should know that credit-building cards also have serious risks. Here is what to do with them and how to make the most of them.

What should I know about using a credit building card?

Credit building cards have some great benefits:

They are accessible even to people with bad or no credit.
They can offer a path towards building your credit history.
Some even have incentives to help you stay on track.

But for all this, credit building cards also come with some pretty significant risks:

High interest rates and fees. Credit-building cards usually have much higher APRs than regular credit cards. They also have a shorter zero-interest period on purchases. If you’re not careful, the interest charges might snowball.
Risk of accumulating debt. For many people, a credit-building card might be the very first credit card they get. This can tempt some to overspend, as “they can always pay it back later.” It’s easy to let the debt slip out of control.
It might hurt your credit history. Even though a credit-building card is meant to help you build your credit, if you make late payments or max out the credit limit, you can actually achieve the opposite and end up in a worse situation.

Use a credit-building card by making payments on time, keeping balances low, and avoiding overspending. Otherwise, your new tool will not live up to its name.

How can I avoid high interest charges on credit-building credit cards?

Credit-building credit cards tend to have some of the highest APRs on the market. We’ve seen them range from 30% to 60%, representative APR. If your credit history is particularly bad, you can expect even more.

To avoid high interest charges on your new credit building credit card, do this:

Pay balances in full every month: This way, you can avoid paying interest charges altogether, as most cards have a zero-interest period (for credit building cards, this is shorter, usually only 30-50 days).
Stay under the credit limit. If you max out your card, you might be charged extra fees and lose any promotional APR you had. It can also hurt your credit score.
Negotiate for lower rates. After you’ve used your card for a while, contact your card provider. If you’ve made all payments on time, they might be open to lowering your rate. Some cards, like the Barclaycard Forward, even have a “Price Promise,” which means that you’re guaranteed lower APRs if you keep up with payments.
Look into a balance transfer credit card. A balance transfer card may help reduce your rate or give you a period when you don’t need to pay interest. Look for balance transfer cards with introductory 0% APR offers to save on interest charges.
Keep working on your credit score: A higher credit score can strengthen your position when requesting a rate reduction.

What are some mistakes I should avoid with a credit building card?

Most people get a credit-building card not for the emergency cash it can provide but to build their credit score.

This means that you want to pay attention to how this card can improve your credit history and avoid all the ways it can hurt it. Here are some common mistakes you should try to avoid:

Not paying on time: Missing or late credit card payments can have a huge impact on your credit score, as your credit history is the main factor in calculating it. Try to make at least the minimum payment each month.
Using the card too little: If you’re letting your card gather dust, you’re missing out on the credit-building opportunity. Worse, your provider might even cancel your card, which could sometimes hurt your credit score, too.
Using the card too much: Experian recommends you keep your credit utilisation (how close your balances are to your credit limit) to under 25%. Go over, and it might hurt your credit score, as it signals lenders that you might be living on debt.
Not keeping an eye on transactions can lead to overspending, missed charges, or even credit card fraud: Check your statement regularly, and if you can, sign up for a credit-building card with a good mobile app.
Cancelling a credit card Instead of downgrading: Closing a credit card can affect your credit score as it lowers your credit limit and reduces your credit mix (how many kinds of debt you have). If fees are an issue, ask your card provider to downgrade you to a card with lower fees instead.

Avoiding these common mistakes and practising responsible credit card use is essential to build and improve your credit score over time.

However, if you’re concerned about making any of these mistakes (which are easy to make), consider downloading a credit building app like Wollit instead.

Unlike a credit card, Wollit reports your monthly fixed subscription as a loan repayment to the credit reference agencies. This helps you build your credit history and gives you a chance to improve your credit score without maxing out your credit card or being hit with high interest charges and fees.

It also does something credit building cards don’t: it reports your rent payments to Experian, helping you add another line in your credit file that shows lenders you’re responsible and you pay your bills on time.