Building credit when you have none

The importance of a credit history


Credit scores are important and important to start to build up as early as possible. My fiancĂ© and I can now borrow up to £30,000 per month if we wanted to (and we're in our 20s). Whilst we are unlikely to ever borrow this much and always pay off our credit cards in full it's always a useful option to have:

Trying to build credit?


One of the hurdles to jump when trying to get a credit card is the credit score. You need a good credit score in order to demonstrate that you can afford the monthly payments. You build a credit score by demonstrating that in the past you have been able to borrow and then to repay. The problem is, if you've never had a credit card then you have no credit history, in which case you have no credit score (or very little) and lenders are unwilling to lend to you.

This is a real catch 22 situation. You need credit to build a credit score but no one will give you credit until you have more of a credit score.

How can you get credit with no credit score?


Improving your credit score in order to get credit can be tough. Here are a number of things that you can do:

1) ensure that you're paying a mobile phone contract. Plenty of young adults that I know still have their parents or partner pay their phone contract. By paying the contract yourself you will build up credit history.

2) stop applying for credit. This can be counter intuitive but regularly applying for credit can damage your credit score. Ensure that there is 6 months between each application.

3) next time you're offered to make a purchase over an extended period at 0% interest then take it. For example, a sofa, big electronics, appliances.

4) look at applying for a credit builder card rather than any other type of credit card. These are credit cards designed to improve credit scores of the user. The catch: they won't lend very much each month (maybe a few hundred if you're lucky) and the interest APR will likely be monstrous. I recommend that you take this route as its the quickest way to build a credit history but for the love of god make sure that you pay it off in full each month. Otherwise, the whole excercise will have been more costly than it was worth.

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