When people apply for credit cards, the issuer undertakes a number of checks to determine whether or not they should accept the application. One of the checks they undertake is a review of the individual’s past credit experience. This information is held by credit reference agencies, and plays an important part in the issuer’s decision. Indeed, some issuers (even issuers of bad credit products) will not even consider an application unless the individual has some history of credit. This can leave people in somewhat of a ‘catch 22’ position, where they need credit, but can’t access it because they have had no prior credit.
Fortunately, there are some issuers who will consider applications from people who have no credit experience. This does not mean that they can issue ‘no credit check credit cards’, because they have a legal obligation to fully assess an applicant’s circumstances before approving them, but the checks that they do undertake focus more on the individual’s wider circumstances.
Every resident in the UK who is aged 18 or over will have a credit file with the credit reference agencies. Usually these files include credit history, but they also contain other information, such as the electoral roll record of the individual (which demonstrates a settled residential status), and other information such as financially linked people.
Using this information, together with employment and income data, issuers of no credit or limited credit history credit cards can reasonably assess an applicant’s prospective creditworthiness, and can lend on that basis.
Are credit cards the only way to build a credit score? Although the flexibility of credit cards makes them a popular choice for people with no credit history to build their credit score, they are by no means the only way this can be done. Numerous other products enable people to build credit. Obvious alternatives include personal (and guarantor) loans, overdrafts, and credit building prepaid cards, but other products which are not always considered credit-based also help establish a credit profile. Mobile phone contracts, monthly insurance payments and post-pay utility bills are all included within a credit file and contribute to credit history.
In many respects products for people with no credit are similar to cards designed for credit building. In fact, many of the products and score cards (which issuers use to assess suitability) are the same. The real difference lies in the fact that many credit building products are intended for people who have some credit history, regardless of whether it is limited or somewhat chequered, whilst no credit history credit products can accept applicants with no history whatsoever.
Unfortunately there is no system for transferring or referencing a credit history developed abroad to help facilitate a UK credit application. This means that people who have moved to the UK are highly unlikely to be accepted for credit-based products immediately. Nevertheless, there are steps that can be taken (and should be taken as early as possible) to help access credit in the future.
The steps are broadly the same as the steps that any individual wanting to access credit in the UK should take, and include:
It is also important not to make any credit applications until a credit file has been established, as these could impact future applications (some credit card issuers automatically reject multiple applications from the same individual within a set timeframe, regardless of the reason for the rejection). However, credit files can be checked with all of the UK’s three main reference agencies, and doing so (to ensure a file even exists) is to be recommended before seeking to obtain credit.