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How to build an excellent credit history

lovemoney staff
by Lovemoney Staff lovemoney staff on 18 December 2012  |  Comments 10 comments

To get a good credit card, you need a good credit history. Here's how to build - or rebuild - yours.

How to build an excellent credit history

Do you remember when getting credit was easy? In pre-credit crunch times, banks seemed to dole it out like sweets.

But it has never been quite that simple for borrowers with credit problems or without a credit history. And with lending criteria getting tighter, it looks set to get even more difficult.  

Nowadays, the most competitive credit cards are usually reserved for people with excellent credit ratings. If your credit score doesn't measure up, don't be surprised if you get turned down if you apply for a top credit card.

But that doesn't mean you can't get credit full-stop. If you think market-leading cards are beyond your reach, you could consider applying for one that is specifically targeted at borrowers with less than perfect credit histories.

Get a free 30-day trial of your Experian credit report

What is a less than perfect credit history?

This doesn't necessarily mean you're a bad borrower. A low credit score will, of course, be triggered by credit problems, but it could be caused by any one of the following reasons.

  • You have had little credit so far. Perhaps you have an overdraft but no credit cards, credit agreements or personal loans.
  • You have never had any credit before.
  • You're a student and you don't have a regular income. (You could apply for a credit card that is specifically aimed at people in higher education.)
  • You have recently moved to the UK or returned to the UK having lived abroad
  • You have a low income. Perhaps you work part-time or you're retired.
  • You're self-employed and you find it difficult to prove a regular income.

If you have little or no credit already, the chances are most credit card companies will reject you. That's simply because they can't assess whether you're creditworthy. Since there's no real track record of how good you are at keeping on top of your debt commitments, you're considered a higher risk.  

There's such a high demand for credit these days, card companies can afford to cherry pick the best applicants. So those of you with a low credit score may find it difficult to get accepted for a mainstream credit card.

But what can you do about it?

Before you even think about the alternatives, check out your credit report first to get a better idea of how your credit history really looks. There's a chance it may not be as bad as you think.

But if your worst fears are confirmed, don't panic. Consider credit builder credit cards, which are especially designed for people who want to strengthen their credit history.

Remember, you should only apply for a so-called 'high risk' credit card if you really have to. Don't repeatedly go for mainstream cards, only to get turned down time and time again. Numerous rejected applications will put even more black marks on your credit report.

The first thing you may notice about these card is their horrendously high APRs (up to 39.9% on our current best buy table). True, these cards don't seem attractive on the surface, but they can serve an important purpose if you use them properly.

The idea is you spend a little on the card every month and then make absolutely sure you keep within your credit limit and repay your balance in full every single month. That way you'll escape the ridiculously high interest rate.

Once you have around a year's good behaviour behind you, this will help to repair your tarnished credit history -- even if you have defaulted on credit repayments in the past. And if you're new to credit, by following this pattern, you'll gradually build up a good credit history.

That should be sufficient to help youstand a better chance of being accepted for best buy standard credit cards. You could then enjoy benefits such as 0% balance transfers and interest-free spending.

So, on a final note, it's important you don't think of these 'high-risk' credit cards as a way to borrow money, but instead as an excellent way of improving your credit rating.

You can sign up for a 30-day free trial of your Experian credit report and credit score through lovemoney. If you don't want to pay a monthly subscription, remember to cancel before the trial is over.

Compare credit builder credit cards

This is a classic lovemoney article that has been updated

More on credit ratings

How to improve your credit rating

What REALLY damages your credit rating

10 astonishing lies about credit ratings

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Comments (10)

  • Simon Ward
    Love rating 8
    Simon Ward said

    PoohBah, your noddle credit report (provided by Callcredit) is different to your Experian credit report and both will be accessed by different lenders. So recommending people only check their noddle credit report is something of a false economy.

    If you have the slightest doubt that your credit history isn't correct and that is hindering your ability to get credit, you should check ALL your credit reports. You don't have to pay anything, providing once you sign up to the fee-charging services you remember to cancel the Direct Debit instruction before the end of the trial period.

    Simon

    News Editor

    Report on 11 January 2013  |  Love thisLove  0 loves
  • centrum46
    Love rating 18
    centrum46 said

    I'm afraid my experience is rather different insomuch that 6 years ago I was caught with considerable balances outstanding on 5 credit cards which I was handling without a problem whilst employed in the finance industry on a good salary. Then the dreaded redundancy turned up out of the blue and I was dumped at the age of 63 but had no previous credit problems ever before.

    At that age there is very little on offer for you in terms of further employment and consequently I got a debt management company on my side and have made consistent monthly payments ever since. I have still got a credit card, which I treat very carefully, and ensure payment out of pension income at due date. However I am still unable to extend the credit limit on the card beyond £400 or obtain credit elsewhere. I am living within my means and have my only debts under control but still I am considered uncreditworthy so what can I do to become acceptable as it is affecting other people living here getting credit due to the address. Trying to be honest ain't working!

    Report on 05 July 2013  |  Love thisLove  0 loves

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