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How to build a great credit score from scratch

If you don’t have a credit history, building a great credit score from scratch can seem daunting. But while it does require some time and patience, it isn’t too difficult if you know how to go about it.

22 August 2017Hannah Salih 5 min read
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Photo by Danist Soh on Unsplash

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You’ll need a credit history to get everything from personal loans to credit cards, but also products like pay-monthly mobile phone contracts and utilities paid by direct debit.

Here's how you can build a great credit score, even if you're starting right from scratch.

If you haven't already got one, having a UK bank account benefits your credit report in three ways:

  • A long-held bank account can make you appear more stable to lenders, as it proves you have a good ongoing relationship with your bank

  • It allows lenders to verify your residency

  • It helps you manage your money and make payments on time, which ultimately affects your credit score

To open a bank account, you’ll usually need proof of ID (such as your passport) and proof of your address. If you live with your parents or have recently moved to the UK, getting proof of address can be a challenge. But don’t worry. Here’s how you can get around it:

  • Skip ahead to step 2 and step 3, then open a bank account once you have a utility bill or other acceptable proof of address.

  • Consider a digital alternative such as Starling Bank or Monese - a bank aimed specifically at people who don’t have proof of address.

Getting on the electoral roll benefits your credit score in two ways:

  • It allows lenders to verify your identity. This helps rule out fraud and makes you look less risky.

  • It proves you have a permanent address, which shows stability and suggests you’re more likely to pay your debts.

What if you’re not eligible to vote?

Of course, you can only get on the electoral roll if you’re eligible to vote in the UK.

But if you aren’t, don’t despair. You can get a similar benefit by sending Experian, Equifax and CallCredit:

  • a document to prove your identity
  • a document to prove your address.

You should also ask them to add a note to your credit report confirming that they’ve verified your identity.

It’s hard to get credit if you don’t have a credit history. But you can’t have a credit history if you’ve never had credit. It’s a bit of a chicken and egg situation.

So what can you do instead? Here are some ideas:

Consider asking your bank for a small overdraft facility

An overdraft allows you to borrow money from your bank account. Since it’s a form of credit, it shows up on your credit report.

Some current accounts feature a small automatic overdraft facility, so it’s worth checking if yours has one. If it doesn’t, try explaining your situation to your bank and ask them what your chances of being approved would be if you were to apply.

You don’t have to use your overdraft. In fact, it’s usually better not to, as overdrafts tend to be expensive due to the interest you pay. The point is to build your credit history by adding more information to your credit report.

Put your utilities, broadband and other household bills in your name

More and more, companies such as utilities and broadband providers are sharing data with credit reference agencies. If you don’t have a credit history, putting these bills in your name is your opportunity to start building your score.

For best results, check that your name is spelled correctly and always write your address in the same format. Even something as simple as a misspelled street name could lead to inaccuracies in your report.

Pay by direct debit whenever possible

If you have bills in your name, it’s important that you always pay them in full and on time. The best way to do this is to set up direct debits. This ensures you won’t forget a bill, because the money leaves your account automatically.

Of course, you’ll always need to have enough in your account to cover what you owe. Otherwise, your payments won’t go through. If this happens repeatedly, it could damage your score.

Consider a credit builder product that doesn't require a credit check

There are products out there designed to help you build your credit history that don't require a credit check. For example, Cashplus and iCount offer prepaid cards with a credit builder option. This credit builder option is essentially a loan that you pay back in monthly instalments, which builds your credit history. However, these cards usually have a monthly fee.

There is also a product called Loqbox which allows you to make monthly saving deposits (from £20) that count as loan repayments, building your credit history. If you change your mind you can get your money back at any time.

Make sure you consider carefully whether these options are for you. For Loqbox you will need to save £20 a month at least (but you get the money back), and prepaid cards with a credit builder option usually charge a monthly fee.

Once you’ve been managing your finances responsibly and paying your bills on time for a while, it’s time to apply for your first credit card - a credit builder card. You should be ready for this step after about six months.

Credit builder cards are designed specifically for people with little or no credit history. They usually have very high interest rates (typically 30% or more), and rarely have any perks.

However, they’re a powerful way to improve your credit score. And if you handle them responsibly, your provider will increase your credit limit and decrease your interest rate over time.

Credit cards affect your credit score, so you do need to be careful:

Use an eligibility checker before you apply.

An eligibility checker lets you find out your chances of being accepted without affecting your credit report and score.

Search for Triple Lock guaranteed offers.

Cards and loans with a Triple Lock guarantee will give you a guaranteed credit limit, guaranteed interest rates. And you’ll even be pre-approved, so you can be 100% certain you’ll be accepted.

Make small, regular purchases.

A good rule of thumb is to never use more than 50% of your available credit limit. This shows your credit card provider you can manage credit responsibly.

Always pay your statement balance on time and in full.

You can pay just part of your balance, the ‘minimum payment’, without damaging your credit score. However, the remainder will attract interest. Credit builder cards have high interest rates. So, if you’re not careful, your debt can quickly spiral out of control.

You’ve managed your bank account responsibly, paid all your bills on time every month and used a credit builder card to build up your credit score. Now, it’s time to start reaping some of the benefits of your hard work.

Once you’ve built up your credit score to a certain level, you’ll have a greater chance of qualifying for a better credit card. Aside from a lower interest rate and a higher credit limit, a new credit card could also give you the following:

Of course, you still need to approach with caution, as otherwise you may do more harm than good. In particular, you should:

  • Check your eligibility using ClearScore’s eligibility checker before applying.

  • Avoid making several applications in a short period, as this could negatively affect the credit score you’ve worked so hard to build.

  • Try not to use more than 50% of your credit limit and always pay what you owe on time.

Next step: Compare credit cards with ClearScore today.

Building a great credit score takes time. The longer you keep using credit responsibly and paying on time, the more your score will improve. It’s that simple.

It’s also worth checking your credit report regularly. That way, you can stay on top of your score and fix any problems before they can have a negative impact. It only takes five minutes a month with our handy credit report checklist.

Next step: Get your free credit score and report from ClearScore.

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Written by Hannah Salih

Content Creator

Hannah is currently studying for a Master's in Comparative Cultural Analysis. She knows all about personal finance, but as a student, she's an expert in money saving tips and tricks.