Luma vs Aqua: credit builder cards get better

Credit cardsCredit builder cards have always been a great idea. But now they've become even better with new launches from Luma and Aqua.

Life can be tough if you have a poor credit score. The banks are nervous about you because you've either failed to pay bills in the past or you've never borrowed at all.

As a result, you can't get cheap loans and any application for a market-leading credit card is doomed to failure. This can be very frustrating if you've never borrowed before – why should you be punished just because you've never taken out a loan or a credit card?

And if your problem is poor financial management in the past, the situation is even more frustrating. After all, a 0% credit card would be a fantastic tool to help you get your finances back on track.

Sadly though, feeling frustrated isn't going to change anything. If you have a poor credit score, the best you can get is a credit builder credit card – also known as a card for bad credit.

How they work
These cards normally have a high interest rate – at least 29% - and don't come with any extra goodies such as rewards or cashback. But on the plus side, if you pay your bill in full every money, you won't have to pay any interest. And as you keep doing that month-after-month, your credit score will gradually improve.

Good news
However, things have changed in the last month. Suddenly there are two credit builder cards that offer some juicy extras to customers with poor credit scores.

The first card is the aqua Reward MasterCard which pays 3% cashback on all card purchases.

Admittedly there's an annual cashback cap of £100, but that means you can spend up to £3,000 and get cashback which is pretty attractive.

The Aqua card's limit is between £250 and £1,600 depending on your circumstances. The normal interest rate on this card is 34.9% but don't forget, you won't have to pay any interest if you pay off your bill in full each month.

The other credit builder card with a juicy extra is the Luma credit card. You don't get cashback with this card but it does offer a 0% period for new purchases. That period ends on December 31st.

So if you took out the card now and then made a purchase, you wouldn't have to pay any interest on that purchase until December 31st. That could help you spread out the cost of a major new purchase such as a new TV.

There is, however, one drawback to these credit card 'extras'. Cashback or a 0% new purchases deal might encourage you to spend more than you can afford. Indeed, if you need a credit builder card because you've spent too much in the past, be very careful about doing anything that could lead to further debt problems in 2013. Don't be tempted into overspending.

On the other hand, if your problem is that you've just not borrowed in the past, I'm less concerned. If you have the Aqua card, just make sure that you pay off your bill in full each month. And if you have the Luma card, pay the full bill as soon as your 0% deal expires.

The other issue to bear in mind is that not all applicants will be granted these cards – even though both cards are actually aimed at people with a poor credit score.

If your credit score is really shot to pieces, you may need to think about other ways to improve your credit score. Check out 10 steps to a perfect credit record for some tips.

But for many folk, either the Aqua or the Luma cards are great tools for boosting your credit score and saving you some money at the same time.

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