How to Get your First Credit

If you want to be accepted for a personal loan, credit card, overdraft, mortgage, or various other forms of credit within the UK, you’ll need to have a good history of credit, and a great credit score. A credit score is the category or number that you can be associated with in terms of your financial history. It helps to define whether you’re a good or bad credit risk and whether you should be given a good deal on the money you want to borrow.

Your credit score will help to determine how much a lender is willing to give you in terms of credit, and whether you will be able to borrow from them in the first place. Additionally, your credit score will also determine how much interest you are charged. Your credit score will be based partially on your history in the world of credit, which refers to how badly or well you have managed your debts, how much money you have borrowed in the past, and so on.

You will need to have some kind of credit history before you can borrow money at a good rate.

Building your Credit History

There are various ways that you can begin to build your credit history. For example, one option is to make sure that you’re enrolled on the electoral roll, as this helps to improve your credit rating. Additionally, you can think about opening and managing your own bank account in the United Kingdom. Setting up and regularly using your own current account will help you to start developing your personal credit history if you make sure that you run your account as responsibly as possible. Running a current account responsibly simply means that you make sure that you have enough money in the account to cover the payments that you want to make.

The more you run your current account responsibly, the more you will demonstrate that you have an ongoing and responsible relationship with your bank. Some banks offer customers the chance to use an interest free overdraft in their account for the first year or so. This can be a great way for you to apply for a small amount of credit if you only need to borrow for a couple of days. However, it’s important to make sure that you can pay off whatever money you borrow before the interest-free period ends. You will need to make this payment no matter how small the amount you borrow.

Remember, managing your current account responsibly will help you to improve your credit rating regardless of whether you have an overdraft.

Other Ways to Improve your Credit Score

Setting up some regular direct debits can be another way to improve your credit score. Your direct debits are simply things that can be used to pay regular bills that you need to give out money for each month, such as electricity, or gas. These can also be used for broadband and car payments. Not only will direct debits help you to improve your credit rating, but some companies also offer discounts when you choose to pay by direct debit too.

Most importantly, remember that the most important way to build your credit history in a positive way is to make sure that whenever you have to pay money for bills or debts, you do so according to the rules and regulations that you have agreed to with your bank or lender. Improving your credit rating is all about showing other people that you are responsible with your money. If you can pay all of the bills that you have on time, this will show that you are capable of using your money properly and following the rules that are given to you.

Additionally, if you end up missing any payments, or giving payments late, then this can lead to huge problems in terms of interest and other issues. If your lender is forced to take you to court to get the money that they’re owed, then you will end up with a CCJ or county court judgement. This will remain on your file for a period of six years.

Before you Borrow Credit

There are various things to think about before you borrow credit. Once you have built up a history for around six months or so, you will be able to apply for credit. However, remember that you should take time to think about which financial products are best to you and which companies are offering the best deals. Additionally, before you fill out any forms to apply for credit make sure that you have the right information available including your building society and bank account details, and your employer’s address and name. You will also need details of all your current credit commitments, and a list of the money that you have going out and coming into your account each month.

Tips for Improving your Credit Score

Your credit rating is a score that can have an impact on your ability to borrow money in the long-term using financial products like mortgages, loans, and credit cards. If your credit rating is poor, then there are things that you can do to improve it and fix the existing problems that you have. However, for as long as your credit score is in bad standing, you could find that you have trouble applying for loans and getting good interest rates on the loans that you are accepted for.

The Things that Impact your Credit Rating

Obviously, it’s always a good idea to avoid anything that might have a negative impact on your credit score. To help you make sure that you stay away from anything that might damage your credit history, we’ve created this list of some of the things that might affect it, including:

High levels of debt: Most credit card companies and banks will feel uncomfortable about lending you money if you’re already stretching yourself over numerous debts.
Late or missing payments: If you make late payments, or fail to make payments on things like your credit card, mortgage, electricity bills, gas, personal loans, and more, this will stay on your credit file for a period of six years.

Applying for lots of credit: Whenever you attempt to access credit through an application, these applications will show on your credit report. It’s a good idea to stagger your applications, because applying for a lot of different things at once can make you look desperate.

CCJs: If you end up with a county court judgement, or a decree for an unpaid debt or bill, this could cause serious problems with your credit score. Often, CCJs can stay on your file for around six years.

Unused credit card accounts: Lenders often examine the amount of credit available to you when determining whether to lend to you. This will include credit that you’re not using.

Mistakes: Any accidental problems on your credit score that lenders see when they’re running a credit check process could impact your ability to borrow money. If something on your credit report is wrong, or doesn’t apply to you for any reason, then it’s important to make sure that you have the issue removed and investigated.

Lack of registration: The electoral register is used to verify that you actually are the person that you claim to be.

Moving around frequently: Lenders are often more comfortable lending to people who live at the same address for long periods of time.
Joint credit: Being tied to any kind of joint credit such as loans, mortgages, or bank accounts with someone who has a bad credit history will impact your opportunities to access credit.

Fixing Mistakes on your Credit Report

Although there are many things that a person can do to damage their own credit report, it’s also pretty common for mistakes to appear on a credit report that have nothing to do with your financial behavior. You should make sure that you check your credit report as often as possible to see whether there have been any mistakes, or whether you might be a victim of fraud. You have the right to see your credit report, or a copy of it, for a small fee.

If you notice any mistakes on your credit report, you can challenge them by complaining to the credit reference agency in question. The company will have a period of 28 days to remove the mistake from your account, or tell you why they don’t agree with your argument that it is a mistake. During this time, the mistake on your account will be marked as disputed, so that lenders can know that they shouldn’t rely on it when assessing your credit.

It’s also possible for people who are pursuing credit report mistakes to speak directly to the lender that they think is responsible for the incorrect entries. Credit reference agencies will often rely on information supplied by lenders, which means that lenders are in a good position to solve problems. If there is information on a credit file that doesn’t reflect your existing situation, you can also consider adding a notice of correction into your report.

Tips for Improving your Credit Rating

If you don’t have any history of borrowing, or your credit score is poor, there are quick steps that can help to improve your credit rating. For instance, you can:
Cancel any credit cards that you aren’t using. This reduces your chances of falling victim to fraud too.

Get on the electoral register, it’s much harder for people who aren’t on this list to get the credit they request.

Stop applying for any form of credit until problems with your file have been addressed and your credit score is improved.

Make sure you make all repayments on time and pay accounts early where possible. This helps to show that you’re a sensible borrower.

How Credit Scores Affect Borrowing Costs

If you want to make sure that you qualify for the highest possible rates on your loan and credit cards, then you’ll need to make sure that you have a good credit score. It’s not enough just to build a good credit history, you also need to ensure that your credit score stays good too! Banks and various other financial companies will use a range of information to determine what your credit score will be. This credit score will determine what kind of interest rates you will be given when you come to borrow money.

Credit scores are often based on the information you put on your application form, as well as data that the lender already has about you based on previous accounts you have with them. Additionally, your credit score will show all of your borrowing behavior as it’s been collected by one of three credit agencies.

Getting a Better Credit Score

There are plenty of different ways that you can improve your credit score, or ensure that your credit score remains in good standing, for instance, your credit score will be better if:

You are on the electoral register
You have your own home, or you’ve been living at the same address for more than a year.
You aren’t connected to anyone with a bad credit score through a joint bank account or mortgage
You have a good credit history because you have repaid your other agreements regarding credit on time, such as your electricity and gas bills
You have evidence of financial stability in the form of a regularly paying job

Why a Bad Credit Score Damages your Borrowing Abilities?

If you have a bad credit score, this could mean that you’re charged higher than usual rates of interest, given a smaller limit on your credit, or that you’re completely rejected when it comes to applying for a credit. Remember that a lender doesn’t have to give you the interest rate that they have advertised, or what you see when you visit comparison websites. Instead, this is a number that’s known as the representative APR, and it has to be offered to just over half of the people that apply for the product.

Remember that your credit score doesn’t just impact your abilities to apply for a new loan or credit card either. Sometimes, credit card and loan providers will frequently take a look at their customers and apply policies called rate for risk pricing. This basically means that if you start to fall into a group because of your credit rating, and the lender finds that the group in question is high risk, then your interest rate might begin to rise.

It’s facts like these that make it so important to ensure that you keep a good credit rating even if you aren’t trying to borrow extra money from anyone.

The Pledges Offered by Credit Card Providers

Todays’ credit card providers have promised that they will not increase anyone’s credit card limit within the first 12 months of borrowing so long as the terms and conditions of the contracts are not breached. After this time it can only increase rates once every half a year. Additionally, credit card providers will need to tell you why your rate is being increased. Credit card providers will also give their customers at least a period of thirty days of notice when it comes to interest rate increases. This means that you should have plenty of time to pay off your full amount of debt.

Credit card providers have also promised to give all customers sixty days to close their accounts and clear the amount of debt that they have at the older interest rate when they are changing interest rates. However, this means that you will not be able to continue spending on your card, but you can continue to pay off the debt without moving to the higher rate. Additionally, credit card providers will not increase your interest rate if you have a problem with debt, so it’s worth talking to a debt counseling team if you have a problem with making repayments.

If Your Interest Rate Increases

If you end up getting a higher interest rate because you forget to make a payment on time, it’s worth calling your lender and explaining why you missed your repayment. Most of the time, if you have a good history for managing your money properly, your credit company might relent and let you go back to your old interest rate.

Additionally, if you’re worried about a changing interest rate, you could always try switching to a different card that offers an interest-free period with balance transfers. This might help you to clear the outstanding balance that you already have. However, if you have a very bad credit score you probably will not be able to qualify for these cards.