This card could help rebuild your credit rating

If you don't have a flawless financial history, you may find it difficult to obtain credit when you need it. Victoria Bischoff explains how this credit card could help improve your situation.

Since the credit crunch, lenders have become much stricter when it comes to deciding who they will, and will not, allow to borrow money.

Unfortunately, this means that if your credit rating is damaged you may find you're not eligible for many of the market's best credit cards.

The good news is there's something you can do to help yourself if you've made mistakes with credit in the past. In fact, some credit cards can prove useful if you're looking to get your credit rating back in shape.

What is my credit rating?
Your credit rating (or score) tells a lender how much risk you pose as a potential customer. It is based on your credit history, which is a record of your previous borrowing behaviour.

If you have regularly made late repayments on debts in the past, or you have never borrowed before, it's possible you have a low credit score.

Your first step towards addressing this problem is to get a copy of your credit report and find out exactly what it contains. (You can find out how to do this here).

Prove you are a sensible borrower
If your credit report does confirm the worst, don't panic. Changing how you handle credit from this point on (or creating a credit history where none currently exists) should make a difference to your credit score in future.

In order to reduce the risk you pose to lenders, you need to prove you can be a responsible borrower. This means using credit sensibly, sticking within your credit limit and paying your bills on time.

A credit building credit card could help you demonstrate these good habits. These cards are designed for people who need to repair their credit ratings and are unable to borrow elsewhere.

Although these cards may not offer the most attractive deals on the market, if used sensibly they could be stepping stones that enable you to get a more competitive mainstream card in the future.

Handle with care
In my opinion, credit building cards should never be used for borrowing.

Because credit building cards are aimed at 'high risk' customers, the interest rates charged on them are usually very high. Lenders use these hefty charges as a form of 'insurance' in case people miss repayments on their debts or default on them completely.

To avoid paying interest, you should only use a credit builder card to make planned purchases you know you can afford. You should then pay back what you have spent on the card at the end of each month before you're charged any interest.

Alternatively, you could use your credit card for controlled everyday spending such as on groceries and petrol.

You might also want to set up a direct debit with your lender to repay your balance in full each month, ensuring you never miss a payment.

The credit limits on this type of card are generally low - so you won't be able to rack up thousands of pounds worth of debt.

However, it's crucial to ensure you stay within your allocated credit limit; otherwise, you'll damage your credit score further and be hit with over-limit charges.

Finally, if your credit history is blemished it is vital you don't dig yourself deeper into debt. Above all, remember the golden rule: never borrow more than you can afford to pay back.

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**