How to erase your credit invisibility

By Benjamin Salisbury


The need for credit often is driven by life events, but there are times when you may not need credit, particularly when you are just starting out and as you get older. At these stages of life, you can be "credit invisible", and that's not a good thing: when you want credit, it may be difficult to get it.  

Prior financial mistakes can lead to a credit denial, but having no recent credit history, good or bad, also can rule you out as a candidate for credit.

"Each lender will have its own lending criteria," Lisa Hardstaff, credit information expert at Equifax, said in an emailed response to questions. "Factors used include an individual's payment history, length of credit history, electoral roll information and any outstanding debts. "

"Lenders use a range of information to judge an individual's credit risk, including real-time information collected by credit reference agencies, before a loan is approved," Russell Hamblin-Boone, CEO of the Consumer Finance Association, said in an emailed response to questions.

If you have no details of previous or recent financial commitments on your file, most lenders will reject your application for a loan, credit card or even mobile phone contract.

How people become credit invisible
"It is rare, but not impossible for people to be credit invisible," said Hamblin-Boone. "Some people have never taken out a loan of any kind, so they have no credit history; some may be retired and may not have used credit for some time. It is also possible to be wealthy and not need access to credit."

There are generally two times when you can become credit invisible: at the start of your adult life and toward the end of it.

 "Age impacts an individual's credit score if it means they don't have enough credit history for lenders to assess their behaviour," said Hardstaff. "This may be the case for young people who have not had any credit in the past."

In later life, once you've paid off your mortgage, car and any other loans, you may not require credit for many years, so your credit rating effectively withers away and dies.

This can be a problem, too, Hardstaff said, because if you need new credit, "Lenders want to see some credit history to be able to predict how the new credit will be repaid."

Even if your credit score was good when you previously had credit, a few years' abstinence means you risk becoming credit invisible. It can happen even if you manage your finances well and have a solid savings cushion. A lender may not trust that just because you handled credit well 20 years ago you can handle it well now.

What can you do to become credit visible?
If you're credit invisible, you need to build up your credit profile to give lenders more confidence in lending to you.

Your first step: sign up for a SIM-only mobile phone contract, pay for utilities by direct debit or use any type of finance. This shows potential lenders you can manage credit and repay debts in full and on time. You should also ensure you're on the electoral roll.

Then, get a credit product. There are products available for people with no credit history or for people taking out credit again after a break. Speak to your bank to discuss your options. Your best option is likely applying for a credit card, even one with a low limit or a high APR, and charging small amounts that you repay in full each month.

"Credit builder credit cards can be an effective way to build up a credit history that will allow lenders to see that an individual has demonstrated responsibility in repaying debts," said Hardstaff.

Next, check with credit reference agencies. It is free and easy to check your credit score annually with one or all of the three main credit reference agencies: Experian, Equifax and Callcredit. Request a copy of your credit file and check that it is accurate and doesn't hold any incorrect information that is dragging down your credit score.

Building or rebuilding credit is not a quick process, but if you use credit-building products wisely, you should eventually be able to apply for bigger loans with better rates. Think of your regular use of credit and habit of paying bills on time as increasing your visibility to would-be lenders.

See related: Pros and cons of having credit, How immigrants to the UK can build credit, Credit cards no longer just for big-ticket items

Published: 15 February 2017