Establishing a credit history can be a nightmare for lots of people – you can’t create a credit history without credit, and you can’t get credit without a credit history! Whilst there aren’t any quick fixes – it takes time to establish a good credit history – there are plenty of easy things you can do now to help you on your way.

• What you need to know about your credit file
• Find out why you may not have a credit history
• Six-step guide to building a good credit history
• How to monitor your credit record for free

What you need to know

Why do I need a credit history? Because without it you will find it almost impossible to borrow money, get contracts ( for a mobile phone for instance) and even rent property.

Who decides what my credit rating is? There are three credit reference agencies – Experian, Equifax and Callcredit - who collect information about you to send to any lenders. They get this information from various places like the Electoral roll, court records and financial data from banks, building societies and other financial organisations.

What information do they have about me? A credit file includes personal information like name, date of birth and current and previous addresses. It also contains all the details of any accounts and contracts opened in your name – both closed and inactive – for six years from the last date of activity. Public records like County Court Judgments (CCJs) are also likely to appear on the report (again usually for about six years).

How is this information used? When you apply for a mortgage, overdraft, credit card, mobile phone contract, insurance policy and even to rent a property – these companies or individuals will want to see your credit file. Remember though that your credit file is not the only thing they use to decide whether to lend to you or not – each company has it’s own set of criteria and all vary slightly from one another.

Why do they want to know this information? Lenders use the information on your credit file (amongst other criteria) to assess how much of a risk you are to them and to see how much money they can make out of you.

So if the information on your credit file leads them to believe that you won’t repay your debt, they unlikely to let you borrow money. Equally though, if you are never in debt and always repay everything back in full and on time you may also face rejection – because a financial institution isn’t going to make money out of you!

You may not have a credit history because:

• You’re a student and you don’t have a regular income
• You have just moved to the UK
• You have just moved back to the UK after living abroad
• You have never had a credit card or personal loan

How to build your credit history

1. Register on the electoral roll

If you aren’t registered to vote you will almost certainly be refused credit, so get yourself on the electoral roll now. Head to About My Vote, enter your postcode to find your local council and fill in the registration form online. Then all you need to do is print it off and send it to your council – simple.

2. Get your timing right

If you make multiple applications for credit within a short space of time, it’ll hurt your score. So if you are applying for credit or even a mobile phone contract – which all require a search of your file – make sure you don’t do it all at once. And if you make an application and get rejected, don’t just keep applying elsewhere because that will damage your rating as you are making multiple credit applications.

3. Get the right credit card

The best way to build a good credit history is really very simple – borrow small amounts of money regularly with a credit card and ALWAYS, ALWAYS pay it back in full and on time.

There’s no point in applying for fantastic credit cards which offer 0% interest deals or rewards if you have no credit history – those cards are only for people who have an excellent credit score, and remember an rejection won’t do you any favours.

Instead, if you don’t have a credit record (and, therefore, you won’t be looked at by the usual card providers) go for one of the more lenient cards. For example, Vanquis (part of Provident Financial which specialises in the ‘sub-prime’ market) does a Vanquis Visa card with a gargantuan 39.9% interest. It is specifically aimed at people with a bad credit history (or no credit history) who can’t get other cards. DO NOT USE IT UNLESS YOU KNOW YOU CAN PAY IT OFF. You think things are bad now? Just see how you feel if you use this, can’t pay it all back and then get the massive interest slapped on every month.

If you just want to have a card to use now for convenience, (maybe for buying things online) you can apply for a prepaid card, although this won’t help you develop a credit history. You can’t be refused on the grounds of your credit rating because prepaid cards don’t allow you to borrow money (and therefore don’t built up a credit history for you), and you only spend what you load onto them. We like the Kalixa Card because it has so few fees. There’s a one-off purchase fee of £6.95, and a small charge for using an ATM but other than that it’s just like using a debit card – except that you don’t need a bank account. Find out more about prepaid credit cards here.

4. Get a small loan

Once you’ve had a credit card for about a year – and have been paying off the bills every month on time – you can try asking the bank for a small personal loan. Once again you need to be able to be pay off the instalments in full and on time but if you do all this it will really help to build up a good credit record.

5. Keep an eye on your credit rating

You can see your credit report for free with a 30 day free trial from Experian. Particularly when you are trying to build up a good history it’s worth looking at your report on a regular basis to check on your progress. Make sure all the information is correct and up to date.

If you notice any old accounts or cards you don’t use, be sure to close them. And if you’re considering applying for a credit card or loan then double check your report just before you do it to make sure everything is as it should be.