How to Start Building Credit at 18

What are the Basics of Credit Scores & Credit Reports?

Before moving into credit building tactics, it’s important to learn the basics of credit reports and credit scores. Your credit score is based on all the information included in your credit report. A credit report is a comprehensive overview of your financial history. It’s very important to keep track of what’s on there, because your credit report will follow you around for your entire adult life. All of this information is seen and used by creditors (banks, credit unions, loan providers) to determine whether or not you’ll be approved for mortgages, credit cards, loans or even a mobile contract. 

Your credit file typically only keeps 6 years’ worth of data at a time. Your credit file is kept by organisations called Credit Reference Agencies. You can expect them to keep the following information about you:

• Personal information including your name, address and any former names and addresses you’ve had over the past 6 years.
• How many financial accounts (bank accounts, credit cards, etc.) you’ve had in the past six years along with when they were opened. It also contains information about your first account and when it was opened.
• Bill payments (which you’ve proactively reported) and if/when they were missed or late. The type of bills reported to CRAs can include: credit cards, mortgages, mobile contracts etc.
• Whether you’re registered on the electoral roll. Tip: Registering on the electoral roll can be a quick way to boost your credit score.
• The amount of credit currently available to you and how much of it you currently use – this is also known as your credit utilisation ratio.
• Who you’re financially associated with e.g. who you have a joint account with.
• If you've had a County Court Judgment (CCJ), Individual Voluntary Arrangement (IVA), default or bankruptcy along with the date each event occurred.

How to Start Building Credit at 18?

The good news is that building credit from scratch at the age of 18 is in fact much easier than improving an already tainted credit report. So if you've yet to establish yourself, here are some helpful tips to get started:

• Get on the Electoral Roll. Registering to vote in the UK helps lenders verify that your name and address are correct. It’s one of the fastest and easiest steps towards building credit!
• Open and Maintain a Bank Account. Opening and maintaining a current account with a bank in the UK helps to prove that you have an established relationship with a financial institution.
• Apply for a Credit card. If you decide that opening a credit card is the best option for you, it's probably best to start with a secured credit card, or at least one without annual fees. Each bank offers different options for opening a line of credit, so make sure that you read up on what you’re getting yourself into. Don’t skip the T&Cs!
• Sign up for a Mobile Contract or a Store Card. Smaller forms of credit such as mobile contracts are a great way to begin establishing credit. You may have higher chances of approval than you would for a credit card or a loan. Be sure to demonstrate your ability to be financially responsible by paying your monthly bills on time and in full!
• Make Timely Payments. When you've established a line of credit, whether through a loan, credit card, or another way, one of the easiest ways to continually build your credit score is to make timely payments. The same goes for all other bills. Making sure that monthly payments are taken care of and paid on time is one of the most important factors for building credit the right way. 

 More Tips & Tricks

As with most things in life, it’s important to not lose sight of the basics when managing your personal finances. Whilst all of the above information will undoubtedly help you start building credit at 18, bare the following tips & tricks in mind:

• Make and stick to a budget to stay on top of payments. Keep track of how much money you make and how much money you spend on your monthly bills. Be sure to prioritise paying rent, utilities and other bills over buying a new pair of shoes.
• Don't spend more than you can afford. Don't use your credit card in ways you wouldn't use your debit card. It’s best to start out by using a credit card to pay for 1 or 2 monthly bills or by using it for regular, yet small purchases, such as petrol or groceries. Be sure to pay it off in full every month!
• Pay your monthly bills on time every month. Avoid late payment penalty fees by paying all of your monthly bills on time. On time monthly bill payments can be a major factor in giving your credit score a boost which is an added bonus!
• Build up your savings and create an emergency fund. Almost everyone will encounter unforeseen circumstances at some point in their life. Creating an emergency fund can help you avoid needing to take out high interest loans or dipping into your overdraft when an unexpected emergency occurs.

How To Start Now? 

Building credit isn’t a piece of cake. Fortunately, Pave exists. Pave is an award-winning credit builder app that actively works with you to help you build your credit score. No hard credit check required. In addition, Pave will help you keep on track of your finances by giving you personalised credit fixes, bill reminders and much more. For the price of a pint of Guinness a month, you can build your credit score and better manage your finances today. Find out more here.

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Consider reading the 9 Brilliant Tips for Building Credit and Becoming Financially Fit & Beginner’s Guide to Building Credit the Right Way next.