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How to improve your credit score if you've never been in debt

Tom Martin
Written by Tom Martin, Content editor

13 October 2016

It's possible to be financially well-off but have a poor credit score, which could stop you from getting the best credit cards and loans.
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How to improve your credit score if you've never been in debt

You may be shocked to find you can't get a credit card despite having lead a financially responsible life, but this is often down to having a limited or 'thin' credit history.

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It's common to think that never having been in debt before is a good thing and looks better on credit reports, but this is not strictly true.

Having no borrowing history can lead to a 'thin credit report' and a poor credit score which makes it difficult to get the best credit deals.

Fortunately, it's much easier to add weight to a thin credit report and improve your credit score than it is to fix a bad credit score.

Thin credit reports at a glance

  • Make it hard to get the best credit card deals

  • A result of having no credit history - not the same as having bad credit

  • Can be fixed by filling in information gaps in credit reports and building up a credit history through responsible borrowing

What is on your credit report?

Your credit report is like your financial CV, it’s a record of who you are, where you've been, your financial experience and how successful you have been at managing your debts.

Lenders will examine it when considering whether to offer you credit and many won't consider lending to you if you have poor credit, regardless of how healthy your finances are.

The following are used to decide your credit score:

Who you are and where you live

  • Electoral role registration - this is used as an official record that you exist, and it's more influential in determining credit scores than many people think.

  • Address details - every official address you've had, generally the longer you live at one address, the better.

Your financial history

  • Account details - all financial accounts you have (loans, mortgages, credit cards and current accounts) including direct debits.

  • Past credit applications - each time you apply for credit it is recorded (even if you were turned down) on your credit file.

  • People you are financially tied to like partners or spouses and joint accounts you hold.

  • Notices of correction - if there have been mistakes made on your report which you've corrected you can leave a note next to these to notify future lenders.

Record of 'bad behaviour'

  • Missed repayments - every loan, credit card or bill payment you didn't pay on time.

  • Details of any past bankruptcies or County Court Judgments.

  • Fraud notices warnings against you - if CIFAS (the UK's fraud database) has record of suspicious financial activities through your accounts there will be a flag on your report.

What is a 'thin credit report'?

A 'thin credit report' can occur when there's not enough information to determine whether you are a reliable borrower. Having a thin report can result in a poor credit score, even without any of the flags showing bad borrowing behaviour.

Many people find themselves in this situation

With most credit applications, your credit score often matters more than having substantial savings or income.

So if you are not on the electoral role, have a patchy official address record, or no credit history then you may find it difficult to be approved for credit, even if you are financially well-off.

How to improve your credit score if you've never been in debt - Your credit Report

How do I build a credit history?

Firstly checking your credit report and seeing if you can fill in any blanks will help, but if you want to pad out your credit it is also a good idea to build up a credit history, even if you don't need to borrow.

One of the quickest ways to build up a credit score is to use a 'credit builder card' which will give you access to limited credit.

If you manage this responsibly and don't miss any repayments your credit score should soon become good.

What are credit builder cards?

Credit building credit cards, or bad-credit credit cards (though there are some differences and you're less likely to need a bad-credit card if you only have a thin report), are provided by companies more likely to accept applications from people with no credit history.

However, as a consequence of being made available to higher risk customers, these cards are more expensive than other types of credit cards with APRs as high as 50%.

Make sure to pay off your balance in full each month if you don't want to be stung by these high interest charges.

Credit builder cards are best used in the short term (6 to 12 months) to build a credit history.

You should consider negotiating a better rate from your card issuer once you have shown responsible borrowing and built a credit history, or switch to a card with a lower APR.

Many credit building credit cards allow you to increase your credit limit or reduce your APR if you meet all your repayments on time.

Compare credit builder cards

Find a credit card designed to help you improve your credit rating.