Lenders will consider an applicant’s credit report when deciding whether or not to lend to them, and it doesn’t matter if they’re 18 or 80. The problem is, if you’re 18 and applying for a credit card, you’re unlikely to have much of a credit history to speak of, because until this milestone birthday you’ll only have been able to borrow from friends and family.
But what is a credit report? This is a compilation of any data relating to your borrowing history. This can include whether or not you have an overdraft; whether you have a store card; and whether you have previously borrowed through any other channels – everything from a payday loan to a mortgage.
Not only are all your active lines of credit listed in your credit report, but also your use of them. If you are currently in your overdraft and have been for some time, this information will be included in your credit report. If you’ve missed a few repayments on your store cards, this will also be included, so lenders will be able to form an opinion of what type of borrower you are. This is not the only thing they use to help them decide whether to lend to you, but it does form an important part of their decision.
So, if you’ve borrowed in the past, perhaps by taking out a store card with your favourite shop, it’s worth checking that the details of this are all correct on your credit file. You can view your credit report by applying to one of the credit reference agencies, like Experian or Equifax.
Carefully check the details of your current or former borrowing and make sure everything is correct. If a missed repayment is listed that you believe you paid on time, get in touch with the credit reference agency and see if you can correct it. If a line of credit is listed on there as active, but you’ve closed it, be sure to mention this too. And if you notice any unusual activity, get in touch with the credit reference agency and the current account provider or lender it concerns, in case you’ve been a victim of fraud.
...or no credit history
The fact is, if you’re applying for your first credit card there’s a chance you don’t have much of a credit history. Credit cards are often a way into borrowing for people, and – used responsibly – can be used to build up a healthy credit report that helps you access the best deals on any future borrowing.
Whatever your age, if this is the first time you have borrowed, you won’t have much credit history to speak of. This can make it difficult to borrow, and particularly to access the best deals on the market. Lenders want evidence that you are a responsible borrower and they get that by looking at your lending history to check that you have been able to borrow money and pay it back again in a timely fashion in the past.
Don’t fret though – almost everyone takes their first step on the borrowing ladder at some point and there are products designed for people like you, like credit building credit cards. We discuss these later. There are other things you can do to make yourself more attractive to lenders too (see below). And remember, it’s typically easier to apply for and get accepted for a credit card than something like a mortgage, so if you’re hoping to buy a house in the future it may be worthwhile using a credit card to build up your credit history now.
As well as examining your credit history, as listed in your credit report, you should also check all the other details contained in it are correct. This includes your name, current address and any financial links you have to other people, such as your partner.
Lenders are looking for borrowers who are listed on the Electoral Roll, as it helps them to verify an applicant is who they say they are and eliminate the risk of fraud. If the address listed on your credit report is not where you currently live, or you are not registered on the Electoral Roll, it’s important to rectify this, as it could stand against you. You can register to vote at your current address here.
While you’re at it, it’s worth also checking you have the same address and details listed across all of your active credit accounts – if you have any – and that any unused accounts are cancelled. Remember that your credit agreements are not only store cards and loans, but things like your mobile phone contract as well.
You might not have a credit history, but you can still advertise yourself as a good borrower to lenders in other ways. An important one is your income. If you have a steady job that you’ve held down for a while, that will stand in your favour. If, on the other hand, you have no job; only a limited income; or if you appear to regularly move between jobs, this may put lenders off.
That’s because lenders want to see that you have the means to pay back what you borrow. If you don’t have an income, this may be impossible, and if you do have an income but it’s only small, lenders may decide it’s not enough to cover your repayments and all your other essential costs.
If you have a history of switching between jobs on a regular basis, this may make lenders feel nervous, as your income doesn’t look very secure. And if you have only been in your current job for a short while, they may also be cautious – so it might be worth waiting a few months, until you’re more settled in the job, before you apply.
If you have no credit history, but you do have a steady income, it may be worth applying to your bank first for a credit card. Usually, it’s sensible to shop around in order to find the best deals and the most suitable products for you, but the benefit of applying to your bank if you’re a first-time borrower is that they already have access to your financial information. Your bank can therefore base their decision on how well you have managed your account with them, rather than your borrowing history.
Of course, if you haven’t managed your account well – perhaps you’ve been hit with fees for bounced Direct Debits or charges for going into an unauthorised overdraft – this is likely to stand against you in the eyes of your bank.
If you do decide to take out your first credit card with your current account provider, don’t feel you have to stick with them. Once you have established yourself as a responsible borrower, and built up a credit history, you could shop around and see if you can get a better deal elsewhere.
Credit builder credit card
Another option if you have a limited or non-existent borrowing history is to apply for a credit builder credit card. These are cards specifically designed for people like you and can provide you with a way to build up that credit history you want.
Credit builder cards usually come with a higher interest rate and lower spending limit than the majority of other cards. However, providing you keep up with your repayments and only spend what you can afford, you can use them to build up a history of responsible borrowing. Failure to do so could harm your credit rating. Once you’ve built up your credit rating, you can use your improved score to your advantage and shop around for a better deal.
Don't be desperate...
Once you decide you want a credit card, you may be keen to get the ball rolling as soon as possible – and if you’re rejected, this can be frustrating. However, it’s important you don’t fling out countless applications within a short space of time.
Each time you apply for credit, it shows up on your credit report. Lenders are known to be wary of people who have applied for multiple lines of credit all at once because it could look like desperation.
This shouldn’t stop you shopping around though. When you compare deals on credit cards on a price comparison site, for example, this leaves a ‘soft footprint’ on your credit rating, which is not something taken into account by lenders.
There are plenty of advantages to having a credit card, so if you are rejected for your first one, don’t give up:
- check your credit report – is all the information on it correct?
- make sure you’re on the Electoral Roll
- make sure you can afford a credit card on your income
- take care to avoid any bank penalty charges
- use a price comparison site to look for credit cards designed for people like you
- spread out your applications
By following these tips, we hope you have success securing your first credit card.
Improve your credit rating with an Ocean Credit Card
You can use our card to help rebuild your credit score by making regular repayments on time and staying under your limit. Not using your card responsibly, however, may harm your credit score.
- Up to £1,500 credit limit
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APR Representative (variable)
Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.