Credit is a funny thing – to get credit, you need to already have credit. If you haven’t already got a credit report, it can be very hard to get credit. Confused yet? You’re not alone.
Let’s start off with the basics: what is credit?
Credit, at its simplest, is the borrowing of money. It might be the explicit lending of money (for instance, a personal loan or mortgage) or a more implicit lending of money (for instance, an overdraft or credit card). Some instances of credit don’t really feel like credit at all – your mobile phone contract, for instance, is technically a form of credit; you pay for what you’ve used each month.
In all instances, you’re afforded an amount of money that you can spend, so long as you adhere to the agreed repayment plan.
However, as we’ve already pointed out, if you’ve never borrowed money, it can be hard to get credit. Never fear, there are a few things you can do to improve your chances of getting credit.
How to get credit for the first time: 5 quick and easy tips
#1. Make sure you’re on the electoral register
This one’s a bit of a weird one – if you’re not registered on the electoral register, then you’re less likely to be given credit. Although it is a small detail, it shows the credit agencies that you exist and that you live where you say.
#2: Set up direct debits
If you can, pay for things using direct debit. Paying your phone bill, your utilities bills and your rent by direct debit is a great way to show that you can responsibly manage your money and make regular payments on time.
Bamboo’s Top Tip: Make sure that you always pay your direct debit and that you don’t miss a payment – that missed payment will hurt your chances of being accepted for credit. (And, in the worst cases, can lead to court proceedings which stay on your credit report for 6 years.)
#3: Get an overdraft on your current account
If you’ve already got a current account but don’t have an overdraft, head into your local branch (or go online) to discuss setting up an overdraft. Not only are overdrafts great ways of demonstrating that you can responsibly borrow money, but they also prevent other negative ratings on your credit report; they give you a buffer against missed payments.
#4: Try not to move too often
Credit companies like stability. They like things to be stable, reliable and predictable. That’s why – if possible – it’s best not to move house too often. Moving house a lot suggests to the lender that your life isn’t stable, and that counts against you. If you can, stay put until you’ve got some credit, and then – if you need to – you’re free to move.
#5: Consider a guarantor loan
Guarantor loans are a great way for people with no credit to get credit – as long as you can get a family member to guarantee your payments if you miss them, then you can apply to borrow up to £8,000 (far more than an overdraft or credit card would allow). Not only that, but the act of borrowing and repaying money (on time, of course) can build your credit score.
After you’ve done these five things, you’re almost there. But proceed with caution.
Credit is a very tricky thing to negotiate – there are lots of things you need to look out for. Most importantly, you should be careful about applying for credit once you’ve got a credit score.
A bit like the electoral role and the moving house business, lenders don’t like to see evidence of lots of credit applications on your file. To them, it suggests that you’re either in financial trouble at the moment or you’re anticipating financial trouble a little further down the line. Either way, they’re considerably less likely to take a risk on giving you credit.
So take your time, choose carefully and make sure that you’re applying for credit that you’re pretty sure you’ll be accepted for.