Are you a first time borrower?
Navigating the credit landscape for the first time can be daunting, however, if you're armed with the right information you’ll not only feel more confident, but things will become simpler, making it much easier to ensure you choose wisely and find the right product.
Covering the basics
When applying for credit, the status of your credit file along with your current circumstances, both lifestyle and financial are key factors for lenders when deciding whether not to lend to you. By making sure you tick the following boxes, not only will you improve your credit score but you will greatly increase your chances of acceptance. -
- Stability – Moving house too often will make you seem unreliable – try to settle in one place.
- Register on the electoral roll – This acts as proof of your address to lenders.
- Your job – Starting a new job too frequently will make lenders question your stability and whether you can afford to make repayments.
- Be in control of your finances – Having a current account and keeping within your overdraft limit shows that you're in control.
- Don't be late – Make sure you stay on top of your repayments. Being late or defaulting on repayments can stay on your credit file for up to 6 years.
- Have a landline – It’s a bit old school and something that’s increasingly rare, but lenders also see a landline phone as a measure of stability.
Products for first-time borrowers
There are a number of providers out there that offer specific first-time credit. Credit cards from Capital One, Aqua and Vanquis, do come with higher representative APRs, but this is due to the higher risk you would pose with limited, or poor, credit history. Most of the time providers will give you a low credit limit initially, and once you have used the card and paid off the balance each month and prove your credit worthiness you will be able to access more. Beware, using a credit card does come with a caution sticker – you want to show how responsible you are with money, and if you fall into too much debt, and fail to make repayments, it will negatively impact your credit file, affecting your financial decisions in the future. There are also some credit cards that come with a 0% introductory period, meaning that you won’t pay interest on your purchases for the first few months – again this is a great opportunity to spend a little each month, and then clear that balance. Browse our credit card comparison table to see how they compare.
Loans to build credit for first-time borrowers
Taking out a small instalment loan, such as one for a car, can also show future lenders that you are creditworthy. Choosing a lender that fits your circumstances and is affordable means that you can make your monthly repayments and help towards improving your credit. One thing to watch out for is the majority of high street lenders with the lowest representative APRs will require you to have a perfect credit history. If you have limited or poor credit, it's unlikely you will be accepted by these lenders. Instead, it's worth starting our free personalised eligibility check to find the most suitable lenders for you to compare.
If you have poor or limited credit but are on a firm financial footing guarantor loans are an option worth considering. Guarantor loans will require you to have someone, such as a family member or friend with good credit to act as security in case you miss your repayments. Guarantor lenders, on the whole, are a relatively cheap form of alternative credit for those excluded from mainstream providers, like the banks and high street lenders. However, they do come with a warning as if you miss or default on repayments, providers will contact your guarantor asking that they make the payment on your behalf. It is therefore extremely important you are positive you can afford the repayments before you apply, otherwise, those closest to you will have to pick up the pieces.
Warning: Making multiple applications
The last piece of advice, which is essential to remember, is that every time you make an application for credit, you will leave an imprint on your credit file, even if it’s a decline. So research thoroughly and shop around for the best lender for your circumstances before you apply. Avoid making too many applications in one go as even the soft searches can leave their mark and can make you look unreliable to other lenders. Instead, you can perform a Choose Wisely Eligibility Checker. This will provide you with a list of suitable list of lenders that you can compare, meaning you can apply to one that you have a greater chance of acceptance with.
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.