One of the questions many people ask is whether prepaid cards are suitable for applicants with bad credit. The truth is that those who’ve had serious financial repercussions before might find it really hard to access personal loans or credit cards and even a current account. Bad credit can make your chances of accessing funding in the UK incredibly challenging.
However, prepaid cards known as credit builders can help in a way. Credit builder prepaid cards are designed to help repair damaged credit ratings to ensure the cardholder gets accepted for funding in the near future.
How prepaid credit builder cards work
Just like other forms of prepaid cards out there, credit builders only require cash to be loaded into them. You can then use the card to purchase items as you would with a debit or credit with only a little monthly fee, or as agreed, being charged. One main advantage of these prepaid credit builder cards is that credit checks won’t be carried out. You also won’t need proof that you earn an income.
While personal information can be required, the chances of accessing the card is ultimately guaranteed. After applying for a prepaid card, in most cases, you’ll be asked whether you’d like to add a credit builder feature to the card.
Opting for this service will see the card provider lending you a specific amount of monthly fees for a whole year and once you repay the loan within the set time and make full monthly payments your credit rating you badly want to improve will start changing for the better.
After making the first payment for the month, the card provider will report the payment history to concerned credit reference agencies where it’ll be updated accordingly. The best time to check for improvement on your credit rating through prepaid credit builder cards is after 90 days.
Cost is low
Chances are one of the reasons for failing to repay past loans on time was the high cost involved. With prepaid cards for credit rebuilding, this isn’t a concern per se. One of the main advantages of using them is that you won’t be paying any interest on the small loan provided to you.
In most cases, it comes with zero administration charges or very little if any. The only thing you’ll probably pay for is the monthly fee agreed for the next 12 months. Credit builder prepaid cards are chiefly for 12 months use, and the loan cannot be used to purchase anything else.
After maintaining the prepaid card for 12 months and having repaid the loan successfully, you can renew the facility and credit building feature. If you’re satisfied with the credit rating improvement up to that moment you can continue using the prepaid card as you would any other without the credit building feature.
Lots of other benefits too
Of course, all you want is a prepaid card perfect for bad credit applicants that also help with improving credit rating over time. However, even after getting such a credit building prepaid card it comes with lots of benefits as well.
If you’ve been having issues with budgeting, the prepaid card can actually help you build financial discipline you may have lost. Overspending is curtailed as you’ll only be using money that’s on the card alone. The temptation to use more than you’ve isn’t really there.
Note that prepaid cards, credit builders or not, don’t provide users with credit card protections such as the purchases protection under the Consumer Credit Directive and 1974 Consumer Credit Act in Section 75. If merchandise bought turns out damaged, faulty or never shipped you’ll be liable.
Prepare for more than just access to prepaid credit building cards
Without a doubt, prepaid cards with credit building features are available and effective if you follow the provider’s guidelines. However, even if every applicant is almost guaranteed to access the facility, they should prepare themselves for full disclosure. Prepare to hand over extra documentation that proves your identity, address, employer among other things. Certified documents will be required as well.
Expect to hand over certified copies of such documentation as driver’s license, passport, building or bank society statement, credit card statement, bankruptcy orders, debt relief order among others depending on the prepaid credit builder card provider.