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The 5 best ways for young people to build credit

The 5 best ways for young people to build credit
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To be eligible for a mortgage or a large loan later in life, you have to start working on building your credit score as soon as possible. For young people, this usually means starting with the basics and making smart financial decisions that show solid management of their money.

Here are some of the best ways for young people to build their credit score.

1. Open a bank account

One of the easiest ways for young people to build credit is to open a bank account. Managing a current account properly shows financial responsibility. And a good way to start is by making sure you always have money in your account to cover bills and never overdraw your account.

If your bank offers an overdraft, this is another good way to build your credit score. You can use it as you would a credit card, as long as you pay it off before the grace period ends and the bank starts charging you interest. But even without an overdraft, managing a bank account responsibly will impact your credit score positively.

2. Register on the electoral roll

This might seem like an unusual recommendation, but according to Experian, registering to vote improves your credit score. This is because companies check the electoral roll to confirm personal information such as your address. So if you’re listed there, your details are recorded and easily found by lenders when you apply for credit.

If you’re not a UK national and cannot register to vote, you should contact each credit reporting company (including Equifax, Experian and TransUnion) separately to let them know. They can add a note to your credit report to explain why you are not registered to vote.

3. Make payments on time

Whatever bills you have, make sure they are paid on time. This is especially important for utilities, such as your phone or electric bill, and any account you have a standing contract with. If companies report a missed payment – or worse yet, if they have to take you to court to get their money – this will show on your credit report.

4. Get a credit card

This might not be possible right away if you’re just starting, but banks sometimes offer credit cards to clients after a few months. Credit builder cards are another option for young people to build their credit score. These cards often come with low credit limits and higher than normal interest rates. However, they can be helpful to improve your credit score if you use them sensibly and always pay them off in full at the end of each cycle.

Once you get a card, aim to use only a small percentage of your credit limit. For example, if your card has a limit of £1000, try not to use more than £250-300 (25-30%) of it at once. Using only a smaller portion of your credit limit and showing you can manage it well will improve your score. 

5. Be patient

A good credit score doesn’t happen overnight. While building your score isn’t particularly difficult, it does require some patience.

When working on building your credit score, don’t go for too much too soon. Too many loan or credit card applications all at once can have a negative impact on your credit report. So can applying for large loans when you’re just starting to build your credit history.

If you follow these steps and don’t rush, you’ll start seeing improvements within a few months – even if you’re starting from zero.

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