"I have never had a credit card, so my credit must be fine." It is an easy thing to assume, but a lender may not see it that way. Having no credit history and having a poor one are two separate situations. Either can lead to a refusal, yet the reasons behind them, and the fixes, are quite different.
This guide explains what each one means, how a lender reads your file and the steps that help in each case.
What having no credit actually means
No credit, often called a thin credit file, means there is very little on record about how you handle borrowing. Nothing on it is bad. It is simply quiet. Common reasons include:
- You are young and have not yet had a credit card, loan or phone contract.
- You have recently moved to the UK.
- You have always paid for everything with cash or a debit card.
- You are not on the electoral register at your current address.
- Household bills and credit have always been in a partner's name.
What having bad credit actually means
Bad credit, sometimes called an adverse history, means your file shows problems. That might be late or missed payments, defaults, county court judgments (CCJs), an individual voluntary arrangement or bankruptcy. Most of these entries stay on your file for six years. Using nearly all of your available credit, or making lots of applications in a short space of time, can also count against you.
The simplest way to think about it is this: a thin file is a lack of evidence, while an adverse file is evidence a lender has to weigh up.
How lenders see a thin file and a poor one
When you apply, a lender checks your credit report with one or more of the credit reference agencies and combines it with what you tell them about your income and outgoings. Every lender has its own rules, so no single score decides everything.
With a thin file, the lender has little to go on. Some will say no simply because they cannot predict how you will repay. Others may start you off with a smaller limit or ask for extra information.
With an adverse history, the lender can see what went wrong and when. Timing matters a great deal. A missed payment four years ago followed by a long run of on-time payments tells a very different story from a default last month. Our guide to the biggest factors that affect your credit score explains what carries the most weight.
How to build up a thin credit file
- Get on the electoral register at your current address. It helps lenders confirm who you are and where you live. You can register to vote on GOV.UK.
- Put a regular bill in your name, such as a mobile phone contract, and pay it on time every month.
- A small amount of credit, used carefully. Some people use a credit-builder card for one small purchase a month, paid off in full by direct debit, to show a pattern of on-time repayment. Whether this suits you depends on your circumstances.
- Space out your applications. Eligibility checkers that use a soft search let you see your chances without leaving a mark that other lenders can see.
- Give it time. A credit file grows month by month, and a few months of steady payments starts to give lenders something to look at.
How to repair an adverse credit history
- Get your free statutory credit report from Experian, Equifax and TransUnion, then check every entry. Ask the agency to correct anything that is wrong.
- Bring accounts in arrears up to date if you can, or ask the lender about a payment arrangement.
- Keep balances well below your limits.
- Add a notice of correction of up to 200 words if a one-off event, such as illness or redundancy, caused the problem.
- If you no longer share finances with an ex-partner, ask for a notice of disassociation so their record stops affecting yours.
Older problems carry less weight as time passes and disappear from your file once the six years are up. Our article on building your credit history covers the everyday habits that help.
Borrowing when your credit is not perfect
If you need to borrow with a thin or damaged file, take extra care. Steer clear of any lender that promises approval or says it does no checks at all. At Logbook Money we look at your vehicle's value and whether the repayments are affordable for you, not just your credit score, and we consider people with bad credit. A soft search gives you a personalised quote with no effect on your credit score. Because a logbook loan is secured on your vehicle and is a costly way to borrow, it makes sense to compare other options first.
This article is general information, not financial advice. If existing debts are already a worry, you can get free, impartial help from StepChange, National Debtline and Citizens Advice.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
