Start Building Your Credit History from a Young Age
You come flying out of school with a solid knowledge of chemistry, maths or history. You can tell your quadratics from your quadriceps, and know the difference between excelling and using excel, but what do you know about personal finance?
The real world can come crashing at you sometime around your eighteenth birthday – there are so many things you can now do, but without a little guidance it can all go so terribly wrong. Especially when it comes to things like debt and money management. A run of mistakes at 18 really can still have an effect well into your 30s, so it’s best to get it right at the start.
Your credit score is key. Throughout your adult life, this little background report is never going away (although things become less important the older they are), so why not take control of it from the very beginning?
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Your credit rating starts from when you are 18. If you were one of those kids whose Mum had them saving and looking after their money for their entire childhood, then you’ve probably got some good habits, but outside of your Mum, no one really cares about it. That’s good news for anyone whose pre-adult savings amounted to getting enough for a packet of Haribo and then burning it immediately. Mmm, sweets.
There’s no quick fix. A credit rating is built up over time – that’s kind of the point, and you can’t just jump on it and say ‘aha! I’m going to do this and tomorrow someone will be willing to give me a mortgage’, but you can make sure you are always taking the right steps.
Step 1 – Be visible
In real terms, this means making sure you register to vote. The electoral roll is the country’s way of knowing where you live, and hiding this information (either on purpose, through forgetfulness or laziness) is not going to help get you trusted.
Sign up to vote to the actual address you live at, and every time you move make updating that information top of your list of things to do.
Step 2 – Have an income
Getting a good credit rating isn’t all about having a job (even though it helps!), it’s about paying back any money that’s been leant to you – paying it back on time and with no problem.
You cannot pay anything back if you don’t have money coming in – spare money coming in that you are not immediately spending on food and rent.
If your income does not allow a little bit over to pay back borrowings, then you shouldn’t have any borrowings! Never ever get credit you cannot afford to repay.
Step 3 – Get some simple, early credit
The catch-22 problem of ‘no one will give me credit without me showing I have good credit history’ is a little bit of a lie.
True, a credit card company isn’t going to give you a £10k limit with no history, a bank won’t lend you £5,000 over 2 years, and there isn’t a car finance company in the country that’s letting you drive off in a Mercedes, but there are plenty of realistic credit options available.
A mobile phone contract is a great place to start. Get something you can afford, even if it’s a sim-only contract, and make sure you pay it by direct debit so that you never miss a payment.
Other early credit that you can use to build your score includes a small overdraft from your bank (ask for £250 in the first instance), or a credit card designed as a credit-builder card. These have higher interest than others on the market but are likely to give you £500 worth of credit even at this early stage of your credit history.
Step 4 – Pay it back, on time, every time
There is absolutely no point in trying to build your credit rating and ruining it instead through poor money management.
Make sure you can afford to pay back every penny of credit on time, every time and don’t overspend just because the credit is there. It’s very easy to make a mistake and overstretch, so personal discipline is very important.
With credit cards and overdrafts, try to pay them back in full each month, but pay back at least the minimum payment amount on a credit card every time, and never let your overdraft go past its limit (watch out for their standard interest payments that may push you past the line if unchecked).
Step 5 – Be very aware of your finances
Use every tool you have available to track your finances and your credit score. Get your bank’s mobile banking app and look at your balance daily, do the same with your credit card company. Track everything and know exactly when payments are due so that you can make sure the money is in place to pay them.
Sign up to a credit report website like Check My File to keep a constant eye on your credit rating.
Step 6 – Avoid financial ties to others
Young people are far more likely to have flat-shares or similar living arrangements where bills are shared. Avoid having your name tied to another’s on a bill if possible. It is far better for you to take a bill completely in your name and pay it in full than to have a shared bill and be unknowingly let down by a flat mate with a different financial outlook.
If one person in the building has a bill in their name and others pay to them, then it avoids any credit-linking that can be damaging for years to come. Of course, remember that if you do take on the responsibility of a bill then you need to be able to pay it in full if everyone else in the house lets you down! This can cause conflict, especially if someone tries to avoid paying, or if someone genuinely cannot pay for an ongoing time – only volunteer to have your name on a bill if you know you can afford to cover the entire amount in an emergency.
Step 7 – Build on your success
Review your credit situation every six months or so and look to expand and improve. Through an online credit report multi-agency website (like Check My File), you will be able to see if your credit report is good and if so, you might want to consider applying for an improved credit card or upping your overdraft limit even if you don’t need either. Gradual growth is how you build your credit score for later life.
Step 8 – Have patience
It does take time to build credit and improve your credit score, but with a little patience the time soon passes, and you’ll be in a strong position.
Don’t try to grab at larger credit amounts early, as the act of applying for credit can have a negative effect on your report. Wait until the time is right and everything will slot nicely into place.
That said, you will start to see improvements straight away on your online credit report, and six months of careful management can see a huge improvement.
Is it good to build credit early?
On the face of it, it seems like a good idea to build your credit as soon as possible, giving you access to bigger and better things as you get older. Anyone considering a mortgage before they are 25 will want to start working on their credit score at 18.
Temptation is a key factor, however. If you are the kind of person who is likely to take their credit and blow it immediately on a new TV, some pretty shoes and an iPad, then the chances are you should hold back a little as any damage done can have a significant knock-on effect.
Can a 16-year-old build credit? What age do you get a credit score?
Your credit score begins from 18, so anything you do before then is only good (or bad) habit-making!
How can I build my credit fast at 18?
There’s no ‘quick fix’ for credit building and anything that offers you an immediate solution is likely to be more harm than good and should probably be avoided.
Building a good profile for getting credit for the first time isn’t difficult or particularly time-consuming, however, and following our guide above will put you in a perfect position.
What should I look out for?
Learning how to build credit is like learning anything else – it takes time and care.
Don’t get taken in by impressive advertising – if something is too good to be true, it properly is. Deals like 0% finance, or quick loans for people with bad credit should be properly researched before you sign on the line.
Check the terms – 0% finance deals often only remain at that level for the first year before the interest ramps up, and payday loans have such a vast interest rate than even borrowing for a single week can be financially debilitating.
Make sure you take the time to read up on any loans or finance deals – check out our extensive library of personal finance articles here on Compare UK Quotes for a wealth of helpful advice!
What are the best ways to build my credit score?
Slow, careful growth through well-managed credit cards, finance contracts (such as mobile phone or car leasing contracts) and loans, coupled with a determination to never be late with a single payment, will put you in a strong financial position throughout your life.
Never take on more than you can realistically afford and ask for help immediately if you ever find yourself with a problem making payments – communication with your lenders is very important.