Best starter credit cards for first time borrowers

If you don’t have any credit history or are looking to rebuild your credit report, then specialist credit cards could help

Want to get a mortgage, credit card, loan or other form of borrowing? A healthy credit report can be the difference between acceptance and rejection, a good rate or a bad rate.

There are plenty of things you can do to strengthen your credit file – registering to vote at your current address, paying bills on time checking your report for errors and having a bank account all help. And alongside these is to spend on a credit card.

That might seem counter-intuitive. Using a credit card is to spend money that isn’t yours to make you seem a better bet for banks. After all, if you don’t need to borrow then surely it’s better to not have a card?

Well, what you’re doing by using a card showing you are a responsible borrower. That you can be given credit and you’ll pay it back on time.

Here’s more on how this helps your credit report and how to find the best starter and first time credit building cards.

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Using credit cards to boost your credit file

There are some key rules you need to follow to make sure spending on a credit card helps rather than hurts your credit report.

Use them only for everyday spending

A very simple one to start. Having a credit card shouldn’t encourage you to buy things you wouldn’t normally be able to afford.

Instead use it only for everyday spending. I often suggest something like supermarket shopping or filling up on petrol. You might be able to pay some bills with your credit card too.

This way you’re just swapping spending on your debit card for spending on your credit card.

It helps to avoid temptation if you only take it with you when you are going to make that regular purchase, and leave it at home the rest of the time.

It doesn’t matter if you use it just once a month, or every day, it’s regular payments that matter. I would say you do want to be spending on it at least once a month though. Longer gaps will mean it takes longer to help boost your score.

Clear the card in full every month

It’s vital that you remember to pay off the card in full. This shows you are responsible and can pay back what your borrow. Big tick for that credit report.

But it also means you’ll avoid getting charged interest. Credit cards have high-interest rates, generally starting at 19% and going above 50%. This is added on each month to any money not cleared.

If you clear the balance in full the same month you’re billed, you can dodge that interest charge entirely for most things.

You can do this whenever you want, but it’s probably best not to do it as soon as you spend on the card as you need time for the spending to be reported to the credit reference agencies, which might just be monthly when the statement is issued.

You can do this manually via a bank transfer, but it’s probably better to set up a direct debit for the full amount. Doing this means you won’t forget, though you’ll need to ensure there’s enough cash in your linked current account to cover the payment.

If you can’t afford to pay the full amount you owe, then pay as much as you can. And that needs to be at least the minimum repayment. This varies and is set by the card provider. Fail to do this and you’ll be hit by charges and it’ll be shown on your credit file – going against the good work you’re doing to improve your credit score.

However, it’s worth pointing out that if you’ve not spent on the card and don’t owe anything, there will be no minimum to pay.

One final note – a few things will get interest charged on them from the same day you use the card. These are frequently called “cash-like” transactions. So buying foreign currency, using a cash machine, buying things like stocks and shares and crypto or buying a lottery ticket using the card should be avoided if possible.

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Watch out for spending the money twice

Though you’ll be spending on things you’d normally buy, that money doesn’t leave your current account until you pay off the card.

There’s the risk that you’ll see the extra cash in your bank account and forget you need it to clear the card. So you spend it elsewhere.

If you are worried about this you can actually transfer the money from your current account into a sub account (either a “pot” or “space” or a completely different one just for credit card spending) as soon as you spend.

Then you can pay the credit card bill from this account and be guaranteed to have enough cash set aside. It might be sensible to add a little extra in there in case you forget, but to be extra safe just put a note in your diary before the direct debit is due to leave the account that the balance is high enough.

Try not to use more than 30% of your credit limit

Lenders often look at something called “credit utilisation”. This is how much of your available credit you use.

Though it’ll be different for every credit card company, a good rule of thumb is to keep that level below 30%. The closer you are to this level each month the better it reflects on your overall report.

So if you have a £500 credit limit you don’t want to owe more than £150 on that card.

However, this isn’t a target to aim for. If you don’t have normal spending that you can put on a credit card to increase your credit utilisation, or if you’re worried about budgeting if you put too much on there, then stick to what you have. It’ll be worse to spend money you don’t have just to get closer to 30%.

Finally, from a credit score perspective, getting into £5 of debt then repaying it on time is just as good as getting into £100 and clearing that. So erring on the side of caution in terms of how much you spend each month will do you no harm at all.

Focus on credit building

There are a number of other reasons credit cards can be useful – extra consumer protection, cashback and rewards, 0% spending and cutting the cost of debts. But I’d try to not get distracted.

Keep it simple by just spending and repaying, spending and repaying, and so on, month after month. Once you’re comfortable with this, and your credit report has improved, you can look at better cards.

The best credit card deals

Check out my list of the best credit card offers and promotions

Is a starter credit card right for you?

A starter or first time credit card can be the right move if:

• You have little to no credit history – for example if you’ve just turned 18 or recently moved to the UK
• You’ve had credit problems in the past and need to rebuild your report
• You’re confident you can clear the balance in full every month

It’s probably not the right move if you’re likely to carry a balance, since starter cards typically charge higher interest rates than mainstream cards. In that case, building credit through everyday banking habits alone may be a better starting point.

Applying for credit building credit cards

Some get caught in the vicious circle of not having enough of a credit history to get accepted for a credit card, but needing a credit card to help improve their report in order to get one.

The problem is that officially applying for credit leaves a mark on your credit file everyone else can see. And someone who’s applied for credit, and been rejected, half a dozen times in a few months doesn’t exactly seem like a safe bet. That means every rejection makes it harder still to get another card.

So how do you avoid this?

Check your eligibility

Many credit card providers will let you undertake a ‘soft’ eligibility check before a full ‘hard’ application. Do this and you’ll know whether you’ll get the card or not, or at least see your chances of acceptance.

Personally, unless there’s a very specific card you are after, I’d go via a comparison site such as Money Saving Expert’s Credit Club. This will show you your chances against a range of different cards. You can then pick the card with the highest chance of acceptance.

Here’s more on how these checks work.

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Look at specialist credit building credit cards

Though any spending and repaying on any credit card will help you improve your credit report, if you’re starting from scratch or have had problems with credit in the past you’ll probably want to look at a specific credit building card.

These are easier to get, but often come with restrictions. The interest rate for a start is likely to be higher than you’ll see on other cards, but this shouldn’t be an issue if you are clearing the balance completely each month.

You’ll also probably get a relatively low credit limit. But that is no bad thing either as it prevents you spending too much on the cards.

Watch out for representative APR

Though I’d encourage you to not get a credit card if you think you’re going to pay the interest charges, it makes sense to be aware of what you could be charged just in case.

Sadly it’s not as easy as just picking the card with the lowest rate as only 51% of successful applicants need to be offered the advertised rate – meaning 49% could pay more, sometimes a lot more.

Best starter and first-time credit cards

The best starter or first-time credit card is the one you’ve got the best chance of getting (so check that eligibility). But if you’ve got a choice I think these cards are worth considering as your first credit card. They’re designed for building credit and they come with some welcome cash if you’re accepted.

Expert thoughts on starter and first time credit cards from Be Clever With Your Cash

The credit card itself matters far less than the discipline of how it’s used. A starter card with a £200 limit, used for one recurring purchase and cleared in full every month, will do more for a credit report over six months than a premium rewards card used carelessly. They have the added bonus of being an awful lot more likely to accept someone with poor or even no credit history.

It’s worth resisting the urge to chase perks or a higher limit early on – the goal at this stage is simply demonstrating reliability.

The eligibility trap catches a lot of first time applicants unnecessarily. Applying speculatively for cards without checking eligibility first generates hard searches that can make the underlying problem – thin or damaged credit history – harder to overcome. A soft eligibility check costs nothing and removes almost all of that risk, so there’s rarely a good reason to skip it before applying.

Once a starter card has done its job, there’s no obligation to upgrade immediately. Keeping the original card open, even lightly used, preserves the account history that contributed to the improved score in the first place. Closing it the moment a better card arrives can undo some of that progress by lowering your total available credit and potentially increasing your credit utilisation score (ie the percentage of all your available credit you’re using).

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