Your credit score is really influential when it comes to your financial life. Many people assume that no credit history is a good thing, but having no credit could leave you with a bad credit score. When you’re young, it can be a good idea to get into the habit of using credit little and often to help build a credit history. But how do you get credit when you’ve never had credit before? The article below looks at how to build a credit history for the first time as a young person and the most common mistakes that young people make when starting off their credit journey.
Why is your credit history so important?
Your credit history affects your ability to borrow money from lenders. This can impact your creditworthiness to get a mortgage for a house, a finance deal on a car, a credit card, and even something as simple as a mobile phone contract. Your credit score is really important for your financial future, and building a credit history early can be a great way to help improve your score and get you better rates when it comes to finance. When you apply for any form of credit or loan, lenders will usually perform a credit check on your file to see how you’ve handled credit in the past. It can be harder to get approved for no-credit loans as lenders can’t predict what type of borrowing you will be as you have no evidence of borrowing.
How to get credit?
It’s worth noting that any car finance, mobile phone contract, or credit card is a legal agreement that you will enter into. For this reason, all applicants must be at least 18 years old before they can be considered. Once you’re ready to get started with building credit, follow our top credit-building tips below.
Open a UK bank account in your name.
The first step to getting credit is to have a valid UK bank account. Having a bank account in your name can help to prove you are a UK resident, establishes a relationship with a bank or building society, and can help you manage your money by setting up direct debits.
Set up some direct debits.
The best way to start building credit is to apply for a small amount of credit, such as a mobile phone contract, or get your name on any bills like gas or electricity. You can then set up a direct debit to meet the payment on time each and every month.
Make all payments on time.
Once you’ve secured a small amount of credit, you should make sure you meet each and every payment or pay off your credit in full each month. This can help to increase your credit score as long as you stick to the payment plan. If you have varied income or not enough money in your account, it can be a good idea to make manual payments instead of direct debits, as missed or late payments can harm your credit score.
Ways to boost your credit even further:
Once you’ve got the hang of handling credit responsibly, there are also a number of ways in which you can help to improve your credit even further.
- Check your credit report. It can be a good idea to get into the habit of checking your credit score and your credit report regularly. After a few months of building credit, you should see your credit score sore to new heights. When you check your credit report, you show reive all the information listed on there and make sure it’s up to date. Misinformation can negatively harm your credit score, and if you need to make any changes, you can contact the credit agency that provided your report.
- Register on the electoral roll. The UK electoral roll is a list of all the people who are eligible to vote. Even if you don’t want to vote in UK elections, you should register on the electoral register. Whether you’re listed on the electoral roll or not will be viewable on your credit report, and it can help lenders to cross reference your information on your finance application.
- Use credit little and often. Your credit score can be calculated by using the credit utilization ratio. Lenders will look at how much available credit you have and how much of it you’re using. It can have a detrimental effect on your credit score if you’re maxing out your credit limits. Instead, you should only use around 30% of your available credit. For example, if your credit limit on a credit card is £1000, you should only use around £300 and work to pay it off as quickly as you can.
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