Whether you’re hoping to get a car loan soon or simply looking to get your finances into great shape before applying, our car finance expert, Verity Hogan, is here to help. Here are her 5 top tips for building a strong credit score as a young driver
Why start building your credit score while you’re young?
When you turn 18, there’s likely a few things on your to-do list – and we wouldn’t be surprised if building a credit score doesn’t make your top three.
When having your first legal drink, voting, or even getting a tattoo are all options that you can unlock on your 18th birthday, it’s all too easy to forget about your finances. But when it comes to credit, the sooner you start, the better.
Having a good credit score isn’t just about being able to get a car loan, it can also help if you want to rent your own place or qualify for some job roles.
And unfortunately, the catch-22 is that you need a credit history to get credit.
So, how can you get started?
What’s the best way to build strong credit as a young driver?
While credit scores aren’t an exact science, there are five steps you can take to start building a strong credit history and improve your chances of securing car finance over time:
1. Start checking your score regularly
Flossing, drinking water, exercising – checking your credit score is another habit to add to into your routine.
The good news is that it won’t cost you a penny. You can sign up for free accounts with companies that work with each of the UK’s three credit reference agencies and get alerts when your score changes, but it’s still worth logging in to check where you stand at least once a month.
You can check your credit score for free with:
Experian
Credit Karma – who work with TransUnion
ClearScore – who work with Equifax
Do you need all three? Yes!
Each credit reference agency – Experian, Equifax, and TransUnion – uses different data and can give you a different score. And there’s no way of knowing which agency your lender will use so spending five minutes a month checking your score with all three agencies could make all the difference.
2. Open a credit card – but always pay your balance in full
Credit cards sometimes get a bad rep, but they can be a great way to start building a credit score – if you use them responsibly!
The secret to credit card success is to keep your balances low and pay them off in full every month. Start paying only the minimum payment amount each month and you’ll start going down a slippery slope that can lead to serious debt.
If you do have a credit card and manage it well, you can start strengthening your credit score and proving to lenders that you’re a borrower they can trust. You might only use it to pay for your monthly petrol, for example, but if you clear the balance in full every time, that’s all you need to do.
Not sure you’re ready to take the plunge? Some banks offer student credit cards with low credit limits, or you could become an authorised user on your parent’s card instead.
3. Keep your number of applications low
Now that you’re legally allowed to have credit agreements, it can be tempting to go a bit wild and apply for every finance deal going. Think store cards that give you a discount at the till, a mobile phone contract, credit card, payment plan for your new laptop – the number of applications you make can quickly add up.
Unfortunately, lenders view people who make lots of credit agreements in a short time as a bit of a red flag. It indicates that you’re relying on credit and perhaps in danger of losing control of your finances.
To build a strong credit score, try to space out your applications. Ideally, you’ll only submit one new credit request – and undergo a hard credit check – every six months.
4. Make your existing loan payments on time
If you already have a type of finance, the best thing you can do for your credit score is make your payments on time.
Make it as easy as possible for yourself; you can set up direct debits, so you don’t have to make manual payments; schedule the bills to go out immediately after payday or your student loan drop date; and set up autopay on your credit cards so that the balance is automatically cleared each month.
5. Register to vote
One of the easiest ways to start building a solid credit score is to register on the electoral roll. You should aim to do this every time you move house, even if you’re living in different student digs each year.
It’s completely free and takes a matter of minutes online using the government’s register to vote service. And you don’t have to wait until you’re 18 either, you can Register to Vote as soon as you turn 16 in England or Northern Ireland or 14 in Scotland or Wales.
H2: How long does it take to build credit?
Building credit doesn’t happen overnight, there are no quick fixes, and you should be very wary of any companies promising to boost your credit score immediately.
In fact, it can take up to six months to improve your score and you may need to open and successfully manage several credit accounts for your credit file not to be labelled as thin.
Still, small actions add up. The more you can do while you’re young, the better your credit score will be as you get older and start needing a strong credit score to finance a car or even get a mortgage.
