BUYERS have been warned against using a credit card that starts charging interest the moment you make purchases.
The tier is a ‘credit maker’ card, which is supposed to help the less fortunate get their finances back on track – but it could send them down a tougher path.
The card is intended for people with bad credit.
Having a good credit rating helps you access the best rates on products like credit cards, loans and mortgages – and increases the chances of your application being accepted.
Although there is no credit blacklist prohibiting people from any type of borrowing, if you have had difficulty in the past you may find that some lenders will not consider you.
But in addition to following simple tips like always meeting minimum repayments and making sure you’re on the voters list, you can improve your rating with a product like a credit card.
Like a traditional credit card, this type of card gives you a spending limit in case you want to delay the cost of purchases.
But the amount you can borrow is often lower than with other cards and the interest rates are higher. As with any form of debt, this should only be a last resort if you really need to borrow.
Typically with a credit card, if you clear your entire balance each month, you won’t be charged interest. Used in this way, they can be a great way to improve your credit rating.
But the lender’s tier is a little different – they charge interest from the minute you make a purchase, unless you set the card up in a certain way so that it’s paid off in full each month.
Debt expert Sara Williams who writes the Debt Camel blog says buyers need to be very careful.
“I usually say there’s not much difference between credit builder cards,” she explained in a recent warning.
“What matters is how you use the card. But I suggest you avoid the Level card.”
According to Sara, the biggest problem with the card is that even if shoppers manage to pay off their balance in full within the usual 28-day period, they will STILL be charged interest on purchases.
According to Level: “If you pay your balance in full by recurring payment on the first payment date, no interest will be added to your account.
“If you don’t pay your minimum payment in full by the payment due date each month, we’ll charge interest on the unpaid portion of your interest.”
What does that mean?
Most credit cards give you an interest-free “grace period” after you make a purchase, provided you pay off your balance in full.
But Level will only give you a grace period if you agree in advance to ALWAYS pay your balance in full by giving it Continuous Paying Authority (where it can request the amount from your bank each month).
Sara said: “A lot of people will be reluctant to do this because they can’t be sure they can always afford the refunds in full – and a lot of people don’t like CPAs and would prefer a direct debit.”
So, if you are sure that you can always pay your balance in full, you can always use the Level credit card in the same way as you would use other cards.
But those who may not be able to repay their loan in full each month, or who don’t like the idea of a CPA, might be better off choosing another card.
The Sun asked Level for a comment.
What are the alternatives ?
You can use a balance transfer to clear old card balances and pay off credit card debt without interest for a set period of time.
And even voter registration can help lenders verify your name and address for credit checks.
Something as simple as paying your bills on time shows lenders that you are a reliable borrower and also boosts your credit score.
Martin Lewis’ Money Saving Expert reveals which cards you MUST also try to rebuild your credit.
Money experts say the Capital One Classic Complete tops the list.
It has six months 0% interest on spend, while Amazon’s Classic Card has three months 0% interest on spend, but you get a £20 Amazon voucher on acceptance.
It’s worth comparing to find the benefits that are right for you.
We reveal nine ways to improve your credit score.
Meanwhile, a credit expert walks you through what you need to do to increase your score – and it all takes just 30 minutes.
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