It’s the classic chicken and egg scenario; how do you build up credit without ever being given access to it in the first place? And why are those people who need to borrow most urgently often the ones least likely to obtain it?
Credit borrowing with no history is difficult, but not impossible; for example, banks are desperate to sign up students to credit cards with various introductory rates and perks.
Everyone has to start somewhere, and here are six tips to kick off the process.
1. Apply for a credit card with small limit
Note that applying for lots of sources of credit simultaneously is definitely not the way to proceed, as this will be flagged up and give warning signs that you’re in trouble. No, the better route is to find one, low interest stream for borrowing, and pay it off immediately. By doing so you’re proving that you can keep track of money and stay well within your means, and therefore worthy of trust.
DO NOT go over your limit or pay it late, or your good work will be immediately undone.
2. Be good – with money and in general
Past difficulties with money, such as county court judgments, bankruptcy or IVAs will be stored on your credit rating, showing what happened, when, and how much money was concerned. Sometimes it might not even be your fault, and alludes to a financial link you had with another person who ran into difficulties such as a business partner or spouse.
3. Create a steady stream of income
When you apply for credit lenders take many things into account about your personal circumstances, but obviously one of the most likely signs that you’ll be able to pay back a borrowed amount is your financial status, and whether ‘what comes in’ can cover ‘what goes out’.
A good job (or offer of a good job) with a healthy regular income or any entrepreneurial/self-employment endeavours that create a steady stream of income should weigh in your favour when applying. A good sum of money saved up, sitting in your bank account, is a strong sign that you can be responsible.
4. Be on the electoral roll
If a credit decision is based on you as a person, then it is a logical step to assume that not appearing on the electoral roll for your local authority is going to somewhat lessen the amount of information available; it provides evidence that you have an address, for one thing. You need to be 18 or over to fill in the short form, which you can obtain from your local council.
5. Apply face-to-face
For a number of reasons, not least the fact that if you are refused you can talk to an advisor to find out why, and what can be done to rectify the situation. A lender might get a better appreciation of ‘you’ as a person if they can see you before them.
6. Be prepared to accept alternatives
With no credit history to speak of, you might not be able to borrow from the high street lenders. However, browsing the internet can connect you with lenders who will get you on the path; BeSavvi and AvantCredit, among others. Don’t turn down credit offers simply because you’re not happy at the interest rate. Instead, take what’s offered and you can then start to build up a credit history.
Photo credit: The Ultimate Guide to Successful Judgment Collection