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Zero to hero – how to build your credit history
Whether you’ve never used credit before or you’re looking to repair the damage from a few mistakes made in the past, building a reputable credit history doesn’t have to be an uphill battle.
Remember, if you’re not already, you should sign up to the electoral roll. You may struggle to access any credit at all if you have not done this first.
Below we’ll explore the different stages you might wish to take to build your credit history from zero to hero!
Consider a credit card
For starters, a credit card could be valid way to kick-start your credit history into gear, providing you spend responsibly and make at least the minimum repayment each month.
As you’ll either have no history or a poor history of managing credit, you’ll likely only qualify for credit cards especially suited to people in your situation. These credit cards are often marketed as “credit builder” cards, as they can help you pave the way to a good credit history. The Ocean credit card – 34.9% APR representative (variable) is an example of this, as your credit history will slowly improve if you make at least the minimum repayment each month – although it’s recommended you clear your balance in full.
Over time, doing this will gradually build your history of managing credit sensibly and you’ll start to become eligible for a wider range of credit cards and loans with better interest rates.
The importance of making payments on time
Another key area you’ll want to perfect to make sure your credit history is in the best possible shape it can be is to make sure all your outgoings are paid on time. This includes things like your utility bills, rent, mobile phone contract and broadband.
This is because, although not all firms will pass your details on to the credit reference agencies, many do and missed or late payments will count against you when applying for credit. Whether or not your missed payment will be recorded on your credit file depends on the firm you missed a payment with, but if you’re late paying and they issue a CCJ, this will most definitely appear on your credit history.
To make sure this doesn’t happen, it’s well worth setting up a Direct Debit to pay your bills each month. You can do this by speaking to the firm in question and asking to set one up.
It’s important to remember that your Direct Debit will bounce if you don’t have the funds in your account, so this only covers you if you have the money to pay the bill.
If you need to, make the step up
Once you’re used to paying by credit card and clearing your balance, you may reach a stage where you need to look at other lines of credit – like a loan. This is a step up as you have to pay the same set amount each month (there’s no option to make a minimum payment), so always make sure you really do need to borrow the money and that you can afford the repayments before committing to it.
If you’re completely satisfied that you’ll be able to repay on time each month and you’ve shopped around to find a good deal suited to you, a loan could help up your credit history further. Repaying on time each month will gradually add more and more “ticks” to your credit history, demonstrating your responsible credit use.
Remember to keep an eye on your credit history
To become a true credit hero, you should get into the habit of checking your credit history regularly. You can do so via one of the three main credit reference agencies, Experian, Equifax or Callcredit – or you can use the free services ClearScore and Noddle to keep track each month.
Doing this will keep you alert of any changes to your credit file that you should be aware of, including negatives against you, and any potential mistakes that need correcting.
Bear in mind that the individual credit score each agency offers you is not actually what lenders see when they run a credit check on you. The credit scores are a general guideline to how well you score on their scoring system – which is why you’ll receive different scores with each agency. Lenders will be able to see things like your payment history, credit limits and applications for credit, but not your credit score.