How a prepaid card could boost your credit rating
"I've got a bad credit history and I want to repair my score. I've heard a Cashplus prepaid card could be helpful and I'd be accepted. Is that true?"
It's true that applicants for the Cashplus prepaid card (more details) will not be subject to a credit check so an application is highly likely to be accepted.
It's also true that Cashplus and the iCount prepaid card (more details) each offer a service - Credit Builder - that can help to repair a damaged credit history.
Whether getting a prepaid card with Credit Builder is as useful as managing other products well, both day to day and in terms of helping to boost a poor score, is debatable however.
We'll look at that debate at the end of this article.
First, let's take a quick look at the Cashplus and iCount credit builder facility: what it is and why it's unusual.
Cashplus and iCount: what's so special?
The Cashplus and iCount prepaid cards are pretty standard prepaid deals.
Like similar cards, cardholders load cash into the account at any Post Office or by BACS transfer and then spend it just as they would with a debit card.
In return, the card provider charges a fee, either monthly or when the cardholder makes a purchase or ATM withdrawal.
What makes these two cards different from other prepaid deals, and useful to those with damaged histories, however, is their credit builder facility.
The Credit Builder facility works like this:
- Cardholders pay a monthly fee to hold the card
- The fee must be paid for a year
- After we meet a certain number of payments, the card providers start to report positively to the credit agencies
- After a year, they then report the card as a "completed loan" for the purposes of our credit records
The cost of the different account options aren't heavily advertised until members have signed up.
|Sign up fee||Monthly fee||Total cost in first year|
It's possible, therefore, to say that customers will pay about £80 or £125 over the course of the year, for the benefit of having a completed loan appear on their credit report.
Is it worth it?
The big question left at the end of that description is this: is £80 worth it?
Having a completed loan, with no missed repayments, appear on a credit report is undoubtedly beneficial.
Simply, that record says to potential lenders or service providers looking at a credit record: "this person can manage their finances responsibly and make payment in full and on time. They're a good bet."
That's something all of us would like our credit reports to say!
On the other hand
On the other hand, this isn't the only way to improve a damaged credit rating and it's certainly not the cheapest.
On balance, we'd say that Cashplus or iCount might be a useful option, but mainly for those that have a very damaged history and a slim chance of getting accepted for other products or services.
1. Rebuilding is free
Getting on the electoral roll, checking old and unused accounts have not been left active, and checking credit files for any anomalies are all simple ways to potentially improve a credit score.
Proving stability in other ways can also help.
Having a landline instead of a mobile or staying in one property for a long time (at least a year), and being on the electoral roll, for example, can all improve the chances of having applications accepted.
All these methods for rebuilding are free and effective. Checking the state of our credit report both before and after can also be done free - or at a cost of no more than £2 at a time. There's more detail on that here.
However, their main component is time, as proving stability means actually becoming more stable, and maintaining that state of affairs for a decent period.
2. Borrowing can be free
For those who can take a chance on looking elsewhere, and accepting that they may face further risks to their credit history if something goes wrong, there are opportunities to rebuild for less.
Let us make clear - the increased risk doesn't have to be huge - indeed, it's possible to start very small.
Meeting monthly payments for a mobile phone or broadband contract are positive commitments that will show up on a credit report.
So too is careful borrowing - say, getting a credit card with a deliberately low credit limit (or using it only to pay for one regular bill and paying it off in full each month) - or paying off other borrowing, such as making monthly payments towards an overdraft on a current account.
For those worried that they'll have trouble being accepted for any or all of those options, Credit Builder could be an alternative option.
Those who do have the above options, however, should note that they're all are excellent ways to rebuild credit - and many have the advantage of being available to us for more than a year.
As long as users continue to manage them well, such options will help build both our credit and the impression of stability - both of which are good things.
Neither of these considerations should necessarily rule out the possibility of using Credit Builder in addition to free forms of credit rebuilding.
But, even though the Credit Builder schemes last for just a year, the cost is not insignificant. If that money could be used elsewhere - for bills, or to pay off debts in particular - it may be worth bearing in mind that similar benefits can be obtained free of charge.
3. There's no set credit score
Finally, there is no set credit scoring system or guarantee that a lender or service provider will take a completed Cashplus or iCount "loan" into account when making decisions.
That's because lenders assess applications based on risk rather than in terms of an unyielding set of criteria; each company will use different measures according to what is least risky or most attractive to them.
So although boosting attractiveness to future lenders is always a good idea, the "perfect" credit rating is a myth and there are no guarantees.
Shelling out £80 or more, therefore, when we can rebuild our credit in other ways may not always be the wisest move.
Finally, so far we've seen that Credit Builder is a good way of rebuilding a damaged credit history (although some people could do the same thing for less) but it's not a service that absolutely everyone will be able to access.
There's no credit check for either the Cashplus or iCount prepaid card: those who apply are more or less guaranteed to be accepted.
However, applicants for Credit Builder must be "Total Access" Cashplus or iCount customers - which means that they'll need to provide certain documents to prove either their identity, or their identity and address.
Those asked to verify their identity only will need to send a certified copy of one of the items in Column A. Those who need to verify both their identity and their address will need to send a certified copy of an item from each column:
|UK Driver's Licence, front and back (provisional or full)||Bank or building society statement**|
|EU Driver's Licence, front and back||Credit card/store card statement**|
|Passport (not expired)||Utility bill**|
|EEA member state ID card||Council tax bill|
|Firearms Certificate or shotgun licence (front and back)||Bankruptcy Order/Bankruptcy Restriction order/Debt Relief Order|
|Northern Ireland Electoral Identity Card||Any Inland Revenue/HMRC letter|
|Construction Industry Scheme Card (permanent only)||Council rent card or mortgage statement**|
|Military ID||Tenancy agreement (council or housing association)|
|UK Driver's Licence, front and back (provisional or full)|
|Firearms Certificate or shotgun licence (front and back)|
* Certified copy means a photocopy signed by a qualified person like bank, building society, Post Office staff member, teacher, police officer or accountant.
**Internet and branch printouts will not be accepted, items must be dated within past three months.
Those who need to provide proof of both ID and address should note that if an item is included in both columns, they can only use it as proof of one of the categories; they'll still need to provide a second certified item.
Once it was the case that only a driver's licence or a passport were accepted as proof of identity, and judging by comments on forums and blogs, that excluded many people who would have liked to take out Credit Builder plans.
Now there are more options in the ID column, though we're not sure how many more people will be able to apply under these new rules.
Let us and others know what you think in the comments below.