Lenders rely on previous credit history when it comes to giving credit in the future. But what can you do if you have no credit history and want to borrow money, get a mobile phone contract, or even get a mortgage?
The problem is that lenders are in the dark about your experience with borrowing if you have no credit history
Unfortunately there’s no magic wand when it comes to getting credit when you have no credit history, but there are things you can do and places you can go to.
Make sure you are on the electoral roll
It is important that any credit agencies have a clear record of your previous addresses. This is proof that all helps to provide a profile and helps to build up your financial character.
Set up a UK bank account
If you haven’t got a UK bank account then this should be your first port of call. Run it responsibly by keeping enough money in it to cover any bills and this will help establish a good credit history.
Set up some direct debits
Now you have your bank account set up a few direct debits, preferably to utility companies to make sure you never miss a payment.
Get a bank overdraft facility
Get into the habit of going overdrawn each month and paying it back in full at the end of each month. This helps to show that you are a responsible borrower.
Get a mobile contract
Instead of getting a pay-as-you-go, see if you are able to get a mobile contract. The easiest way of doing this is via your broadband provider who might be able to offer a separate contract.
Apply for a secured credit card
These are different to traditional credit cards as they are backed up with a cash deposit that is usually the same as your credit limit. You then spend on it just like a credit card, buying things and making payments with the secured deposit serving as collateral if you do not make payments.
Apply for a credit-building credit card
There are credit cards out there that are specifically designed to help you build your credit history. They start off with a low credit limit to see how you manage to prove to lenders you are responsible.
Become an authorised signatory on someone else’s credit card
If your partner or spouse or parents have good credit and they agree you can apply to become an authorised user on their credit card. As an authorised user you can take advantage of all the perks of using a credit card but you are not legally required to make payments. Make sure you agree the terms before you start using the card and also that your borrowing history is being recorded by credit agencies.
Get a co-signer
If someone is willing to become a co-signer for you then it is possible to get a loan or a credit card. However, the co-signer will be liable for any debt accrued if you default on payments.
Get credit for the rent you pay monthly
If you are renting it is possible to get recognised for paying your rent on time using agencies such as Rental Kharma and RentTrack. Some credit agencies take these payments into account and some don’t but it is worth getting them noted.
Good habits build a good credit score
Getting a good credit history takes time, at least 6 months before you will be able to start applying, in the meantime, following these good habits will all add up to a good credit history.
- Always pay your bills on time
- Don’t apply for too many new accounts at the same time
- Keep accounts open for a long time to establish a history
- Check your credit history to make sure there are no errors
Where to go to get credit if you have no credit history
If you have no credit history but still need access to cash, there are a few different options.
This is a type of co-operative where members have added money in order to be able to offer credit at lower rates. To apply for a loan you have to be a member of the union and have something in common with other members.
You could get a loan that is secured on an asset such as your car, an item of expensive jewellery or even your house. The problem with this is that if you default then you lose the secured item.
Use a guarantor
A guarantor is someone who agrees to pay the loan in the event that you are unable to pay it back. Typically guarantors are parents of young people or friends.
If you are interested in finding out if you have a credit history then you can get online access to your credit report with the Equifax Credit Report product which is free for 30 days and then costs £9.95 a month.