How to build credit if you have no credit history
A good credit score can improve your chances of being approved for loans, mortgages, credit cards, and securing the best deals. But what happens if you have no credit history? This guide explores why building your credit history is important and gives practical tips to get you started.
Why don’t I have a credit history?
Having no credit history means that the main credit reference agencies in the UK - Experian, Equifax and TransUnion - have no information about your borrowing habits. Because of this, you’re also unlikely to have a credit score.
This situation is sometimes called being ‘credit invisible’ or having a ‘thin credit file’.
Common reasons for no credit history
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You’ve never had a credit product: If you’ve always paid with cash and never used overdrafts, loans, credit cards, by now pay later (BNPL) services, or taken out a mortgage, there’s no borrowing history to report.
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You’re under 18 years old: In the UK, you can’t access credit products if you’re under 18. Many young adults haven’t used credit even after turning 18.
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You’ve just moved to the UK: Even if you’d built up an excellent credit score in another country, it generally won’t transfer to the UK. You’ll likely need to start building your credit history from scratch.
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You haven’t used credit in a long time: Credit information stays on your credit file for up to six years. If you haven’t borrowed in a long time, your history may no longer be visible.
Why is credit history important?
You might think that never borrowing would mean a good credit score, but this is a common myth. Here’s why having a credit history matters:
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Your credit history is a key part of your credit score: Your credit score is largely based on your past borrowing behaviour. Without any borrowing history, credit reference agencies may find it hard to judge how likely you are to repay money and may struggle to generate you a credit score.
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Lenders use credit scores to make decisions: When you apply for loans, credit cards or mortgages, lenders look at your credit score - along with other information - to assess how likely you are to pay them back.
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Better scores can mean better offers: A higher credit score can increase your chances of approval and access to better interest rates and terms, which can save you money.
How no credit history can impact you
Without any credit history, it can be harder to get approved for:
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Credit cards, loans or mortgages
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Phone contracts
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Buy now, pay later (BNPL) products
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Car or home insurance
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Renting a home
On the other hand, having a credit history that shows good payment history helps you show lenders that you’re a trustworthy borrower. This can make it easier to access the credit you want.
Ways to build credit if you have no credit history
To build your credit history, you’ll need to use credit. However, only do so if you can afford to make your repayments and understand how to manage credit responsibly.
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Get a credit-builder card: Designed for people who are building their credit score, these cards usually have lower credit limits, but work like regular credit cards. Always make your payments on time to build a positive payment history. And try to stay well below your credit limit too.
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Get a student credit card: These cards accept students, often with a limited credit history. They may have low credit limits and can have high interest rates.
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Use an arranged overdraft: If you stay within your agreed limits and regularly clear your overdraft balance, using an arranged overdraft can build your profile as a responsible borrower.
Improve your chances of being accepted for credit products
For those with limited credit histories, it can seem like a catch-22 when applying for credit. To increase your chance of approval, consider the following tips:
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Get on the Electoral Roll: Registering to vote helps lenders verify your identity and address.
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Check your credit file for mistakes: Regularly inspect your credit file for any incorrect or outdated information and dispute any errors you find.
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Avoid lots of applications at the same time: Each full application for credit leaves a hard search on your credit file, which can cause a temporary dent in your credit score. Applying for multiple products in a short period can make you seem desperate for credit and significantly drop your score. Aim to only make one full credit application every 6 months.
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Check if you’ll be accepted first: Use price comparison sites to see which products you’re likely to be accepted for before applying. These sites typically do a soft search on your credit file, which does not impact your score.
Good credit management
Simply opening new credit accounts isn’t enough to build a great credit score. You need to manage your borrowing well. Here are some tips:
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Make sure you can afford your repayments before borrowing: Always calculate if you can manage the repayments comfortably before applying for credit.
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Make payments on time: Timely payments are important for maintaining and improving your credit score.
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Stay well within your credit card credit limits: Aim to only use 25% of your available credit limit on your credit cards to demonstrate responsible credit management.
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Avoid withdrawing cash on credit cards: This can be costly and potentially negatively impact your credit score.
How long will it take to build my credit history?
Building your credit history - and credit score - will take time. It’s not an overnight process. You can start to build a credit history within a few months of consistent, good credit management. But it can take years of good credit habits to achieve an excellent credit score.
Alternatives for someone with no credit history
If you’re finding it hard to access credit, consider these options:
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Use savings if you can: This means you avoid the need to borrow altogether.
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Look at credit union loans: Credit unions are alternatives to traditional banks and they often offer products to those who may have had difficulty getting credit elsewhere.
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Secured loans: This is when you use an asset you own as collateral. That means if you fail to make the payments, the lender could take your asset.
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Lenders that use Open Banking: Some lenders use Open Banking technology to assess your financial situation by viewing (with your permission) your bank account data. This can help lenders decide whether to lend to you, even if you have a thin credit file.
Get help
If you’re struggling with your finances, help is available. You could reach out to these organisations for advice:
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Citizens Advice – They give free advice on topics like debt, the cost of living and benefits.
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StepChange – They provide free debt advice and can help you find a way out of debt.
Key takeaways
Having no credit history can make it difficult to access borrowing. To build your credit, consider opening new credit accounts designed for those new to credit. Remember, to build a good credit history you’ll need to manage your credit responsibly. That means paying on time and staying well within your credit limits. Over time, good credit management will boost your credit score, improving your chances of accessing the best credit products at the best rates.
