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How do credit builder prepaid cards work?

A credit builder prepaid card is one of the options you can use if you want to build your credit history from scratch or repair your credit score. It’s not always the best one, though.

How does a credit builder prepaid card work?

Credit builder prepaid cards work like any other prepaid card. You load them up with cash when you want to and use the card as you would any other debit or credit card, usually in return for a small monthly fee.

The "credit builder" bit means that when you apply, you can add a credit builder service to your card. If you opt for this service, the card provider will lend you a year's monthly fee.

The idea is that you pay this loan back over 12 months, and by making your monthly payments in full and on time, you will build your credit history and improve your credit score.

As soon as you make your first monthly payment, the card company reports your payment history to credit reference agencies, and your credit history is updated. You should notice an improvement in your credit rating after the first three months.

On top of this, credit builder prepaid cards don't carry any credit checks and don't ask for proof of income, so you're guaranteed to be accepted if you apply for one.

How much does a credit builder prepaid card charge?

The amount that the card provider lends as part of the credit-building option will be small, usually between £5 and £10 a month.

You will also pay no interest or admin charges—just the usual monthly fee for 12 months.

Once you've had your card for a year and repaid the loan, you can renew your card and your credit builder arrangement. If you don't want to renew your credit builder arrangement, you can use the card as a standard prepaid card.

Remember that some prepaid cards allow you to borrow a small amount that you can actually spend, sometimes between £500 and £1000. Be careful with this option—it usually comes with very high-interest rates and fees (35-65% APR per year), and missing just one repayment will damage your credit score again.

What are the downsides of a prepaid credit builder card?

The downside is that prepaid cards don't offer the same protection as credit cards. Credit card purchases are protected under Section 75 of the Consumer Credit Act 1974 and the Consumer Credit Directive, which means your card provider is jointly liable with the merchant for purchases between £100 and £60,260 that are faulty, damaged or don't arrive.

This protection won't apply to your purchases with your new credit builder prepaid card.

What other tools can I use to build my credit history?

Prepaid cards can be a good option for building your credit history, but they're not the only ones.

Other tools that you can use are:

  • Experian Boost: This can improve your credit score by making some regular subscriptions (council tax, ISA investments, etc.) count towards your Experian credit score.
  • Wolit: Wollit reports your monthly subscription as a loan repayment to all three leading credit reference agencies, helping you build your credit history. It also reports your regular rent payments to Experian so lenders can see that you pay your bills on time and are financially stable.

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Terms apply. Results may vary. Improvements to your credit score are not guaranteed. Wollit Credit Builder plans are unregulated.