Just like the elders before you, you must show you are trustworthy in order to build a harmonious credit history. But where to begin when you’ve never taken credit before? Fear not, for I have walked the path already – let me be your raft and I will show you how to row.
Credit is basically borrowing money. As a customer, you’re lent this credit based on the trust that regular repayments will be made over an agreed period of time. Credit comes in lots of forms – secured loans, unsecured loans, mortgages, credit cards and many more. It’s important to remember, credit doesn’t have to be in the form of a loan – it could be a phone contract or a gym membership. It’s an odd one to get your head around but before a lender is willing to offer you credit, you need a credit history.
How does a company decide if you’re credit worthy?
First off, a company will make their decision to lend to you based on your credit rating and credit score.
You’ll no doubt have heard how people with bad credit find it more difficult to get mortgages and other forms of finance compared to people who have a good credit score. It’s the same for someone with no credit rating.
There are a number of things you could do to improve your chances of being accepted for credit:
1. Use a current bank account and manage it well – this includes not going into an unarranged overdraft. If you’re continuously in your overdraft and subjected to charges and fees, potential lenders may view you as a higher risk customer who struggles to manage their finances.
2. Pay your arranged direct debit bills on time.
3. Moving jobs or moving house can affect your credit rating (which can be hard when you’re a student). Lenders like stability and reliability. Avoiding unnecessary house moves or address changes may help stabilise your credit rating.
4. Getting yourself on the electoral register (sometimes called the ‘electoral roll’) is a must. This tells the government where you live and who’s registered to vote at that address. Visit your local council’s website for advice on how to go about it.
You can also look at:
• A guarantor loan. This is an unsecured loan where a second person is required to co-sign the credit agreement. This means the co-signee agrees to pay off the debt if the person who has taken out the loan misses their repayments. Guarantor Loans may be suitable for people who have a damaged credit score or no score at all, so the lender checks the credit report of the guarantor (ideally a home owner). The guarantor must agree to be the named customer before the person makes the application. MoneyGuru offers a Guarantor Smart Search and comparison table.
• Overdraft. If you already have a current account, you can apply for an arranged overdraft with your bank. The Overdraft agreement allows an account balance to go below zero, with an agreed interest rate in place to charge for the service. Usually this will only be for a small amount, and if used wisely the bank can increase this for you over time. If an account goes beyond the agreed overdraft the charges can be extortionate.
• Credit cards that specifically build your credit score are available from a number of companies. Beware though; APR can be very high so paying back on time is very important.
Before taking out any form of credit, always make sure you can make the repayments. If you
find yourself getting into trouble with debt or want advice from an expert, please visit the following website:
Check your credit rating
Checking your credit rating before applying can give you some indication as to whether you’ll be accepted. If you’re unsure as to what your credit score is or what your credit report might say, it’s worth checking our Credit Rating loan guide to get more of an idea.
There are many companies who can provide you with a quick overview of your credit rating and some provide this service free of charge.
Find the right loan for you
Whether you’re after a small short-term loan or a longer-term personal loan MoneyGuru provides you with a complete comparison table of the various loan types we have on offer. Smart Search is a single application form that provides access to multiple lenders, with results starting with the lowest APR. Decisions can be made based on a number of lender results and attributes, making smart search a useful tool for customers looking for a suitable loan for their individual circumstances.
If you’re worrying about debt, or need help with your finances, MoneyGuru suggests you visit: