How can not being in debt be bad for my credit rating?
A credit rating is the impression that credit bureaus have of a person based on a large number of factors, largely focussing on their past behaviour towards credit. Past experience from banks has shown that the way in which credit was dealt with in the past has a large bearing on how credit is dealt with when it is given again.
Although this obviously means that if a person has had problems in the past with paying back money will have problems with being lent money again, it can also mean that a person who has never borrowed money can have a problem with getting credit. This is because when there is a measure that relies on a particular measure, in this case a credit rating, then if there is a total or near total absence of the measure then the lender has nothing to go on and will often simply ignore this person.
Having no credit history can affect many people, including recent immigrants and people who have recently left home, such as students. Credit history also affects many other things beside a credit card; it can also affect the chances of getting a home loan, a rental agreement, insurance and even a job.
There are alternative credit cards that are either aimed at people with a poor credit rating or at groups that traditionally don’t have a full credit history, such as students or recent immigrants. The interest rates and fees on these credit cards tend to be higher than they are on normal credit cards. Credit limits also tend to be lower.
Another thing that should be done is to build up a credit history. This is usually best done by taking out a loan that is small enough to be easily manageable and can be paid back with ease. It usually takes around 12 months for a full credit history to be built up. However once this is done then the credit history can mean that standard credit cards can now be applied for which will greatly lower the amount of interest that is charged as well as increasing the amount of money that can be borrowed.
