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Saturday, October 18, 2014

How to establish a credit history from scratch

By Bill Turner

It is thought that building a credit history, when you have not used credit before, is a difficult task. Some lenders want to see that you have as history of borrowing and paying back before considering you for financial products such as credit cards and loans.

How to build credit history
Credit history is one of several key credit variables
However, if you do not have credit history, this should not deter you, as establishing credit history will give you a chance to start an excellent credit score.

For first timers, how can you start building credit history? It may seem difficult, but following these simple steps may set you on your way.


Set up a bank account

Opening and managing a bank account is an excellent way to start building your credit history, if managed properly. Ensure that your account has enough money to pay off any bills as this will show that you have a good relationship with your bank and avoid leaving your account empty. Set up direct debits for easy payment, this can benefit your rating and some companies offer discounts on bills for paying by direct debit.

Get on the electoral role

Getting registered to vote will prove to future lenders that you are a real person and is one of the most important aspects when it comes to credit history. It can be done by either going to your local council or online. It is easy to do and can have an impact on whether you are accepted or rejected for future credit.

A secured credit card

These are similar to a regular credit card, the only difference is that you have to pay a deposit, usually a maximum of £500. This will provide assurance to the creditor that you will repay your debt. Once the card is paid off completely, you will have the deposit returned to you. When you use the card to buy something, the money is not taken from your deposit; instead, it acts like a regular credit card and the money is borrowed from the lender. It is an effective means to start building a credit history and will show how responsible you are with borrowing capital. Along with this, you should avoid making numerous applications. Focus on one card by paying the bill every month and keeping the balance low.

Manage payments

As mentioned with the direct debits, when using the secured cards you need to be able to pay off what you have borrowed on time. Any missed payments will be noted as a default on your report and act against you when applying for future credit.

Apply for an unsecured credit card

If you have managed to keep up with the payments of your secured card, at least 12 months’ worth of payments, you should then apply for an unsecured. These cards come with no security deposit and with higher credit limits.

Following these suggestions may help you in starting to establish a credit history. Other online financial organisations can provide you with other financial products if you feel that your credit history is not up to scratch. They can suggest the products that are ideal for you, such as a secured credit card that can help you build, or repair, your credit history.

About the author: Bill Turner is a technology guru and entrepreneur. He is a free-lance writer who specialises in guest blogging. When he's not marathon training, you can find him strolling the beach front.

Image: Pne, CC BY-SA 2.0