Building a credit history as a young consumer

Before accepting you for a loan or credit card, providers need to assess your level of risk. We take a look at what information banks and building societies consider when checking your financial history and how to build and protect your credit report.

Credit reference agencies

These agencies collect information about all of our financial dealings. This way they can build up a financial picture of each person they hold information on. This data is then, with consumer consent, given to banks and building societies to help them decide whether to lend to you.

There are three main credit reference agencies in the UK - Experian, Equifax and Callcredit.

What information do credit reference agencies track?

Credit reference agencies gather:

  • Your personal details from the electoral roll (a list of everyone registered to vote)
  • Any county court judgements or Scottish decrees against you
  • Any bankruptcies
  • Information from banks and building societies about borrowing requests
  • Information from banks and building societies about any missed borrowing repayments
  • Any missed bill payments (eg gas and electricity, mobile phone contracts)

What are credit reports used for?

Banks and building societies will use your credit report to help them decide whether they should lend to you, and may impact the interest rate at which they lend. If your credit report shows you already hold a lot of credit and may have missed a number of repayments, they may decide that you’re too risky to lend to.

If your credit report shows a few old missed payments but nothing too severe, you may be given a higher interest rate than you were expecting. This is because the bank or building society is taking a bit more of a risk in lending to you.

Once you’re 18 or over you can request your own credit report from any of the three credit reference agencies at a cost of £2 each:

Noddle, part of the Callcredit group, also offers free access to your credit report for life.

Some of the credit reference agencies offer promotional opportunities to view your credit report online for free for a limited time. After that you’re typically charged a monthly fee to keep your online access. This may be useful, but remember to cancel before the expiry of your free trial if you don’t want to continue using the service.

Credit reports for young borrowers

You may think that the strongest credit report would be one showing only your personal information on and no record of any borrowing or missed payments - this is what most young people’s credit reports look like. In fact, banks can find these difficult as they don’t give them any historical information about how you manage your finances, making it harder to assess your risk. Banks and building societies tend to prefer a credit report that shows well-managed borrowing.

Maintaining a good credit history from day one

Looking after your credit history can be extremely important later on in life when you may need to use borrowing products such as mortgages and personal loans. Here are some tips for maintaining a good credit history:

  • Make sure you’re registered on the electoral register from age 18
  • Manage your bill payments effectively to avoid missed payments
  • If payments are missed contact your provider immediately
  • Only take on borrowing that is affordable to you