To be accepted for a credit card, personal loan, mortgage, overdraft or most other forms of borrowing in the UK, you’ll usually need to have a good credit history and credit score.
How to start building a credit history
There are some simple steps you can take to start building a credit history.
Open and manage a bank account
Setting up and using a UK current account will help build your credit history because it’ll help you show that you can manage your income and outgoings effectively.
Opening and managing a current account responsibly will help your credit rating.
Find out more in our guide How to choose the right bank account
Set up some Direct Debits
Top tip
Always make sure you have enough money in your bank account to pay any bills being paid by Direct Debit or standing order.
Set up some regular Direct Debit payments to pay bills such as your gas and electricity or your home insurance or mobile phone.
If you’re worried there might not be enough money in your account, or your income varies, making manual payments might be the better option.
Don’t miss payments
It’s important to make sure you pay all your bills on time, as a missed or late payment will count against you.
If your lender has to go to court to get back the money you owe them, then a County Court Judgment (or decree in Scotland) will significantly affect your ability to get credit and will remain on your file for at least six years.
Is your household income getting squeezed?
If you’re facing higher living costs, but have little or no extra money coming in, find out about extra sources of income and support available to help you manage your household bills and save money in our guide Living on a squeezed income
Beyond your credit history, there are certain other things a lender will check when working out your credit score and deciding whether to lend.
Whether you’re on the electoral register
Being registered to vote in the UK means lenders can check that you live where you say you do, so it’s important to register.
If your name isn’t on the electoral register, add it as soon as you can.
You can find out more about registering on the Electoral Commission website
Financial ties with other people
Top tip
If you close a joint account, request a ‘notice of disassociation’ from the credit reference agency to stop your credit files from being linked.
If you’re thinking of having a joint credit agreement (such as a loan or mortgage) with someone else, their credit rating might affect yours.
That’s because your credit file will be ‘linked’ to the other person’s and a lender might check their file as well as your own if you apply for credit.
For example, if they fail to make repayments on credit cards or other loans, it might make your credit rating worse.
That’s why it’s important to end financial links with ex-partners by closing any joint accounts you still have and contacting the credit reference agency to ask for a ‘notice of disassociation’ to stop your credit files from being linked.
Your credit rating might also influence the rate of interest and the APR you’re charged on any borrowing, and the amount you can borrow.
Read our guide How your credit rating affects the cost of borrowing
Checking your credit report
Regularly checking your credit report can help you see which direction your score is going and identify any incorrect information.
Find out more in our guide How to check your credit report
If you want to apply for credit once you’ve built up a credit history, there are some things to consider.
Most importantly, do you need to borrow money? Taking out credit and keeping up with repayments can improve your credit score. But if you miss payments your score will go down and this might affect your chances of borrowing money in the future.
Find out more in our guide Do you need to borrow money?
If you do need to borrow money and you’re sure you can afford the repayments, it might be a good idea to think about what kind of credit you want. This depends on a lot of factors, such as how much you need, what you need it for and how long you need it.
Find out more in our guide Deciding on the best type of credit for you
It’s important to be careful about how you apply for credit. Applying for too many products within a short period of time will negatively impact your credit rating and will make lenders less likely to accept your application. But some credit providers might only conduct a soft search before assessing your credit application.
A soft credit check allows a lender to have an initial look at information held on your credit report. They then decide on how successful your application would be without a full examination of your credit history. Because they don’t leave a footprint on your credit report, lenders can’t see these searches and they won’t impact your credit rating.
Before you start filling out an application form, make sure you have the following to hand:
- your employer’s name and address
- your bank or building society account details
- your monthly or annual income and pay reference.
You might be asked for details of existing credit commitments, including credit limits, amounts outstanding, and other costs.
You might want to draw up a list of the money you have coming in and going out each month.
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