A high credit score opens doors to cheaper loans, better credit cards deals and easier mortgage approvals. But if you have a rubbish rating, it can mean being left out in the cold.
One way to improve your credit score is to use a credit-builder credit card. However, not everyone is comfortable with the thought of borrowing money or the high levels of interest these cards typically charge.
If you are looking for an alternative, Loqbox and 118 118 Money have introduced credit-repair products that operate a little differently. But is there a catch?
Which? takes a closer look at these products and how they stack up.
Loqbox: use savings to repair your credit
Loqbox is a free tool that allows you to repair your credit history by saving a set amount each month via direct debit.
When you sign up, you effectively agree to borrow a sum equal to 12 months’ savings by choosing to deposit between £20 and £500 a month.
So, for example, if you opted for £20 a month, your record would show you ‘borrowing’ £240 in an interest-free loan over the course of a year.
Each time you deposit the money, it is noted on your credit history as a repayment.
The money is kept in a ring-fenced account with Lloyds Bank, which means the funds are protected by the Financial Services Compensation Scheme (FSCS).
Can I access my money?
After a year, the ‘debt’ will have been repaid and your money will be returned in full.
Your credit score will reflect a year’s worth of responsible repayments on a loan – even though you haven’t borrowed anything.
If you need the money earlier, or think you may struggle to make a payment, you can unlock your funds and have your money repaid. This won’t register as a default in your credit history.
However, a missed payment is likely to be recorded as a default. So if you’re unable to make a monthly payment, it will actually end up damaging your score. You’d be better off just asking to withdraw the money instead.
Is Loqbox worth going for?
Loqbox’s scheme is free and doesn’t require you to undergo a credit check, unlike a credit-builder credit card.
Rather than encouraging you to borrow, which carries the risk of falling into debt, it encourages you to save at least £20 a month or £240 a year (up to £500 a month or £6,000 a year.)
That said, the ring-fenced account also won’t pay you any interest, so you may miss out on returns over the year. Your money could instead be earning interest in a regular or fixed-rate savings account rather than sitting in limbo for 12 months.
Plus, if you can qualify for a credit-builder card and use it properly, you get extra protection on your purchases with Section 75 of the Consumer Credit Act.
118 118 Money card: pay a subscription instead of interest
The new 118 188 Money credit card charges no interest and no fees on transactions such as spending abroad and balance transfers.
Instead, you’ll be charged a flat monthly subscription cost that ranges from £8 to £17 a month, depending on the credit limit you qualify for.
As your credit score improves, you will be offered a higher limit – and face a bigger subscription cost as a result.
Is the 118 118 Money credit card worth going for?
The 118 188 Money Credit Card claims to cut hidden fees and charges, which can often catch people out. But while the card doesn’t charge interest in a traditional way, the cost is still incredibly high.
With a £250 limit, you would pay £8 a month or £96 a year – equivalent to paying 38.4% in interest, except you’ll be charged even if you pay the balance off in full.
Those that qualify for the £1,200 limit have to pay a subscription charge of £17 a month, which amounts to £204 a year – or 34.5% APR.
The fee remains the same even if you hardly ever use the card. So, for example, if you spend just £100 in a year, you’ll still end up paying £204 back.
This level of interest is what you’ll usually find on a typical credit-builder credit card. But if you use a credit-builder credit card properly, and pay back what you owe each month, you won’t pay a penny in interest, leaving you much better off.
What’s the best way to improve my credit score?
If you don’t qualify for a credit builder credit card, Loqbox seems like a sensible alternative, although you’ll forego interest on your savings.
The 118 118 Money credit card, on the other hand, seems like an expensive subscription which may end up costing you more than a standard credit-builder card.
However, 118 118 Money defended the deal. A spokesperson said: ‘Around 20% of UK credit card holders have persistent debt, are in arrears, or habitually make the minimum payment on their card. While we recognise that the 118 118 Money Card won’t necessarily be right for everyone, it has been created for those who are tired of being tripped by high interest fees and hidden charges.’
If you want to fix your credit score, there are a range of credit-builder credit cards on the market that could cost you much less or nothing at all if you pay back what you spend each month. You can compare deals with Which? Money Compare.
Remember credit building products like these aren’t the only things to consider. There are plenty of other ways you can improve your credit score, such as registering to vote and ending old financial associations.
You can find out more in our guide to 7 ways to improve your credit score.
This article has been updated
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.