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Do you need a credit card to build credit?

If you are seeking ways to give your credit score a boost, you may have heard that credit cards can be pretty useful. Is it true that you can use credit cards to build credit? It certainly is, but just because you can does this mean that you should? Let’s take a look at the pros and cons.

How a credit card can help

There is no disputing that you can use credit cards to build credit. As long as credit cards are used responsibly, they can certainly give you a boost. Here’s a look at the ways that they can be beneficial:

Credit cards are effective

The truth is that credit cards just work. When it comes to obtaining credit, credit cards are often one of the first that people get access to. Starting with a small credit limit, they give people the chance to prove that they can manage debt responsibly.

Lenders like them

If you are going to use credit cards to build credit, it is good to know that lenders look at these positively. Credit cards give you access to a set limit and you have a degree of freedom as to how much you use. How you use your credit card can tell a lender a great deal about you and how you manage money.

The big plus with using a credit card is that it shows lenders that you can be trusted. Assuming that you use you card responsibly, you are showing that you have access to credit every single month and are honouring your commitment. Unlike a loan, which is a one off payment, you are using revolving credit and every month you are building trust.

Your payments are reported everywhere

There are three credit reference agencies in the UK. These all produce their own credit scores that show us how we are doing. When you spend with your credit card and then repay, this information is shared with all three agencies.

The downside of credit cards to build credit

There is a flip side to using credit cards to build credit and it is important to consider these before you start to submit applications. The most common downsides include:

You run the risk of getting into debt

If you are yet to establish a credit history, credit cards may prove a little too tempting. They are a great way to start building a history, but there’s a huge risk that you will overspend. Credit cards are an easy to spend much more money than you actually have in your account. If you are only making minimum payments you can make any debt last even longer and spend thousands of pounds on costly interest fees - which will make you worse off with a credit card than without.

High interest rates

If you are going to use credit cards to build credit, beware of the interest rates. If you can’t clear your balance in full every month, you will then start accruing interest on all the amount left over. This can soon see your debt grow and you can end up paying lot of your money trying to fix your credit card splurging.

Understanding utilisation rates

Lenders like to see that you don’t use credit just because you can. Maxing out credit cards can look bad and never using them may offer little benefit. Understanding the right percentage of credit to use to will give you the best results, but can be a little confusing, as you’ll need to pay attention to how much your credit limit is versus how much you spend. Ideally you need to keep your utilisation rate under 20%, or even better if it moves around 3-5%.

The credit card alternative

There are other options that are just as effective as using credit cards to build credit. Our (unsurprising) favourite is Wollit. What we offer comes without the same risks you run by using a credit card. By subscribing at a cost of £9 per month, we will report your monthly payments to all 3 UK credit reference agencies, building your credit history, the single most important factor affecting your credit score.

While credits cards can be a great way of building credit this method comes with a number of risks. Opting to use what we offer at Wollit, as an alternative, can bring you the same credit building benefits without any of those same risks.

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Feel better about your credit score

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