How to get credit for the first time

To be accepted for a credit card, personal loan, mortgage, overdraft or most other forms of credit in the UK, you will need to have a good credit history and – in some cases – credit score. Find out how to start building one.

What is a credit score?

A credit score is a number or category that reflects how good or bad a credit risk a particular lender thinks you are. Normally, the higher the number, the better the risk you are. Your credit score can determine:

  • Whether a lender is willing to lend you money
  • How much money you can borrow, and
  • What interest rate you will be charged

Your credit score will be based partly on your credit history, which is a record of how much you’ve borrowed in the past and today and how well – or badly – you’ve managed your debts. You need to build one before you attempt to borrow money. This is particularly important if you’ve moved to the UK from another country.

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 if you run it responsibly (e.g. making sure you have enough money in your account to cover your payments each month) because it will demonstrate that you can have a responsible, ongoing relationship with a bank.

Some banks offer new customers an interest-free overdraft for the first 12 months, which can be an alternative to applying for a credit card if you only need a small amount of credit for a few days and can pay off your overdraft.

Make sure you can pay it off in full before the interest-free period ends.

Opening and managing a current account responsibly will help your credit rating even if the account doesn’t include an overdraft.

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 or mobile phone. Not only will this give you a better credit rating, but you’ll probably get a discount for paying by Direct Debit as well.

Don’t miss payments

Make sure you pay all your bills on time, as a missed or late payment will count against you. If the lender has to go to court to get the money, then a county court judgment (or decree in Scotland) will severely affect your ability to get credit and it will remain on your file for six years.

Factors that could stop you from getting credit

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, make sure you add it as soon as you can.

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 have a joint credit agreement (such as a loan or mortgage) with someone else, their credit rating could affect yours. That’s because your credit file will be ‘linked’ to the other person’s and a lender can 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 could make your credit rating worse.

That’s why it’s important to end financial associations 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.

How your credit rating affects the interest rate you’re charged

Your credit rating may also influence the rate of interest you are charged on any borrowing.

Who works out your credit score?

There is not one single, definitive credit score that exists for you. Rather, it’s worked out by each individual lender. So for example, two different banks might credit score in different ways depending on their policies on lending.

However, when you apply for credit they will check with one or more of the three main credit reference agencies in the UK: Experian, Equifax and Callcredit.

These agencies each compile credit information about individuals in the UK.

Before you apply for credit for the first time, you might want to check your credit report is up to date and correct.

Things to think about before you borrow

Once you have built up a credit history over, say, six months, you can try applying for credit. But before you do, spend some time thinking about which is the right product for you and shop around. Also make sure you know how you’re going to pay the debt back.

Applying for credit

Before you start filling out an application form, make sure you have the following to hand:

  • Your bank or building society account details
  • Your employer’s name and address
  • A list of the money you have coming in and going out each month and
  • Details of existing credit commitments