How to build your credit history as a student or young person

What is my credit score?

The 12 things you need to know to build your credit history

1. You need a credit history to get credit

   It's an odd fact of life, but you need to have a credit history before lenders will start lending to you. The catch-22 is how you get started if no one is willing to lend to you because you haven't borrowed before...

   When you apply for a product, a 'credit check' is done. This means lenders put all the data they have on you into a complicated algorithm in an attempt to predict your future behaviour based on your past. While a poor history counts against you, so does having little credit history as it makes predictions less certain.

   In reality, credit history affects your ability to get the following: mortgages, credit cards, bank accounts and loans; water and energy bills paid via direct debit; broadband, landline phone and mobile phone contracts; car and home insurance; buy now, pay later products.

   Unfortunately, if you're new to the UK – even if you built up a really good credit history in the country you lived in before – you'll essentially be starting your credit history again, as credit scores can't cross borders.

   Experian, Equifax and TransUnion build credit reports using information from UK accounts, so if you've just moved to the country, you'll probably find that your report looks quite bare, which'll impact your ability to get credit.

   For this reason it's important to start building your UK credit history soon after arriving. Do keep copies of your credit history from abroad though, as with some lenders it could help with your application.

   I've recently moved to the UK – does my credit history from abroad count?

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2. Register to vote or it can be harder to get credit

   One of the first steps to building a credit history is to get onto the electoral roll – see how do I register to vote?. That's because as well as checking how likely you are to pay them back, lenders also check your identity when you apply.

   Where you are on the register, this'll be recorded on your credit file. It doesn't matter if you're registered at your parents' or your term-time address (if you're a student), though ensure any application for credit is linked to the address you're registered at.

3. Get a specialist student account – with 0% borrowing

   At 18 or 19 years old, no one expects you to have built a credit history yet. But if you're a student, banks have special accounts which give you the ability to borrow – these are your gateway into the world of credit.

   When you open a student account, you can apply for a 0% overdraft. These advertise overdraft limits of up to £3,000, though actual limits tend to be lower, especially in your first year.

   Don't just open a student account with the bank you had an account with when you were a kid – we've full information on the best accounts, and what you need to think about when choosing, in our Student bank accounts guide.

   You then need to manage your account properly

   Immediately spending £1,000s and going over your overdraft limit is likely to show your bank and other lenders that you can't be trusted with money (as well as whacking you with hefty charges).

   While your overdraft rate is 0%, it should only be used in case of cashflow issues, not regularly. Add up your student loan, plus any grants, income from employment and money from your family. This is your income for the term and what you should be using when figuring out how much you have to spend each week. See Student budgeting and money management tips.

4. A credit card can help you build a credit history, but only if you use it responsibly

   There'll come a time, whether at university or at another early point in your credit journey, when a credit card company will target you for one of its cards, complete with snazzy marketing.

   Credit cards aren't a bad product in themselves, but in the wrong hands they can be.

   The best cards normally require a decent credit history but there are cards that are designed for people with a poor credit history or a thin credit file. Yet because people using them are more risky for lenders, they make the cards quite expensive – interest rates of 34.9% are common.

   But if you use these cards sensibly, you won't ever need to pay this interest rate. Ideally, you'll use it for planned, normal spending each month, pay it off IN FULL on time, and reap the credit file benefits – doing this shows you can use credit responsibly. Check our guide for the Best credit (re)build cards.

   Even if you're struggling to make a payment one month, try not to default or miss payments – it can be a massive hit to your credit history that could cause problems that cost you for years. If you are in difficulties contact your lender – hopefully it will try to help.

   WARNING: If you don't have financial discipline, don't do this. Credit cards very easily allow you to spend more than you can pay back, even ones that have a low credit limit.

5. Before applying for a credit card, check whether you'll get it

   Whenever you apply for a credit card, this leaves a search mark on your credit report. Too many searches make you look desperate for credit, and can themselves be a cause of rejection.

   

   We thought this was unfair, so we built our eligibility calculator. 

   It allows you to see which cards you've the most chance of getting before you apply – and it doesn't leave a mark on your credit file that lenders can see (we do what's called a 'soft search', which means you can see the search, but lenders can't, so there's no impact on your credit file).

6. Stability counts when you're building your credit history

   You might live at four or five different addresses during your student years. That's going to hinder you when it comes to applying for credit.

   Lenders look for stability, they're looking for you to live in one place. If you can, use your parents' address for all your financial accounts. Keep application details the same between all accounts – the same address, the same phone number, the same bank details.

   This consistency will help to demonstrate you're a responsible, stable person, not someone they would have a harder time tracing if you didn't pay them back.

7. Watch out for changes to your credit score by checking your credit report regularly

   There are three credit reference agencies in the UK, which are Experian, Equifax and TransUnion. These agencies store the details which make up your credit report. Over time, your bank account provider and any credit card providers you have will share data with at least one (and maybe all) of these agencies on how well you manage your account.

   It's worth keeping an eye on your credit report for several reasons:

   • Firstly, so you can check the agencies have got the information right and correct anything that isn't, as inaccuracies scupper applications for credit. See Repair credit file errors. 

   • Secondly, to keep an eye on how you're doing with building a credit history. Each agency gives you a credit score based on your history. The more you do to improve your credit history, the higher your score  – and the more chance you'll be accepted by a lender for credit.

   You needn't pay to check your report. See our Check your credit report for free guide.

8. Get started with MSE's Credit Club

   MSE's Credit Club

   

   MSE's Credit Club shows your real-world credit power – which translates to acceptance for credit cards, loans & more – and explains how to improve things.

   MSE's Credit Club uses a new Eligibility Rating which combines the THREE crucial factors that dictate whether a lender will accept you, to show a far bigger picture...

   1) Your credit score 
   2) Your affordability score (which, crucially, includes income)
   3) Current market conditions

   Once logged in, it'll show your TransUnion credit report and score. Plus, it’ll give you access to our eligibility calculators for credit cards, loans and mortgages, allowing you to see the deals you'll most likely be accepted for, without impacting your ability to get future credit.

   Join MSE's Credit Club

9. What lenders really know about you

   There are a lot of myths about what lenders really know about you when they're deciding whether to lend to you. The information they have is a lot more limited than you might think. It includes:

   • Information in your application form

   • Information from any accounts you've had with them before

   • Your credit history, obtained from one of the credit reference agencies

   And that's it. Read exactly what lenders know and what lenders don't know.

10. Don't let your flatmates' credit history wreck yours

    If you're renting a flat or house, your flatmates' credit histories could affect yours.

    If you're both (or all) named on broadband, gas or electric bills, then it's possible that a financial link will be created on your credit records. This means that lenders can search linked persons' credit records when you apply for credit. And, if they don't like what they see on others' reports, it could result in a 'no' for you.

    Read full information on Why linked credit records happen – and how to delink.

11. Payday loans can KILL future applications

    In the past, some payday lenders disingenuously suggested that taking their loans and repaying on time boosted your credit score, as it starts to build a history of better repayment. This is true to a very minor extent for those with abysmal credit histories – though using a Credit rebuild card correctly is more effective and far cheaper.

    While not many payday lenders will touch students, as you don't have a regular income, there's some that do.

    Avoid them like the plague. Payday loans have hideous interest rates, and many mainstream lenders won't touch you with a barge pole if they see you've taken recent payday loans. Read more on why you should avoid this hideous way to borrow in our Payday loans guide.

12. Don't panic if it all goes wrong

    The tips in this guide are designed to help you build a good credit history as early as possible. But, nobody's perfect, and there's a chance that at some point, you'll get something wrong – you'll forget a payment, or simply not have enough money to make the payment.

    The first thing to say is, you shouldn't panic – especially if it happens while you're young as time is a great healer. Your payment history's kept on there for six years, so by the time you're in your mid-20s, any student mishaps will have disappeared.

    While anyone you apply to for credit will be able to see six years of history, they'll give the most weight to the most recent year or two. So, provided you quickly get back on your feet, any slip-ups shouldn't ruin your financial future.

    For a full rundown of what you need to know about credit, see our Improve your credit score guide.