Applying for credit for the first time

If you are applying for credit for the first time, you may feel overwhelmed about your application. Credit can help you secure vital things, such as a credit card or a loan for a car, making it essential you apply for credit in the correct and most effective way. No credit score or a bad credit score can make it almost impossible for many borrowers to get a loan (Source: Growing Power – Bad Credit Loans).

Below we outline everything you should know about applying for credit for the first time.

What is a credit score?

Put simply, a credit score is a number that indicates how much of a credit risk you may be to a lender. The higher your credit score is, the lower the risk you are. Your credit score is based on your financial history, such as how well you’ve managed debts and how much money you have borrowed in the past. A credit score can influence who is willing to lend you money, how much you can borrow and what interest rate you will receive for your loan. Therefore, you should try to build your credit score as high as possible before applying for credit.

How to start building a credit score

Quick, simple steps to building a good credit score…

1. Open a bank account

Open a UK bank account and manage it responsibly. Ensure there is enough money to cover your expenses as this will prove you are responsible with your finances. A current account can contribute to a positive credit score even if you do not have an overdraft.

2. Start some direct debits

Set up some direct debits to be paid from your bank account, for example, your phone bill or electricity bill. Some energy providers even offer discounts for direct debit payments, making this a win-win scenario.

3. Never miss a payment

Once you have set up your direct debits, however, it is important you do not miss a payment as this will negatively affect your credit score. If you do not have enough funds to cover your direct debits, contact the companies you have arranged direct debits with, explain your situation and ask to change the payment date to later in the month.

Things that may prevent your first-time credit application from being approved

Aside from your credit score, there are other factors which may cause your credit application to be rejected.

1. You are not registered to vote

While being on the electoral register may not seem directly related to voting, many loan providers use the register to check that you live at your home address. So, even if you do not plan on voting in a general election, you should still register as soon as possible.

2. You have financial connections with other people

If you apply for a joint credit agreement, for example, a mortgage for a home, with another individual, their credit score may have an impact on yours. If you don’t want an ex-partner or family member’s credit rating to affect your score, close all joint accounts together and ask for a notice of disassociation to prevent your accounts being connected in the future.

How long does it take to build a credit score?

If you are starting to build your credit history from scratch, it will most likely take around six months to build a good score. The longer you have to prove your financial responsibility, the better, so you should start building your credit rating as soon as possible. Whilst you build your credit score, you should consider the type of credit you want to apply for and how you will repay any money you borrow. Never try and borrow any money you know you will be unable to pay back.

Who calculates my credit score?

There is not one definitive UK organisation that calculates credit scores. Rather, each lender will calculate a credit score based on their criteria. Although different lenders may have slightly different criteria, your credit score should not differ too much between different lenders.

Top tips for applying for credit for the first time

1. Collect all the relevant information

To make the application as quick and easy as possible, collect all the information you will need to complete the application form. For example, you will need your employer’s name and company address, your bank account details and a recent paycheck or proof of your annual income.

2. Create a chart of your monthly incomings and outgoings

Create a list, chart or flow diagram of the monthly incomings and outgoings of your bank account, and ensure you will have enough income to pay back your loan in a timely manner.

3. Know your credit limits

The credit application company may ask for details about existing credit limits or commitments you have, so ensure you are aware of every credit commitment you have.

4. Check your credit report

Check your credit report is up to date and correct before applying for credit to ensure you get an accurate response.

How to financially prepare for a baby

Starting a family is one of the most exciting times of your life, but it can also be one of the most expensive. According to a report from investment and insurance group, LV=, when raising a baby, the first year alone will set parents back approximately. In order to make sure that you’re financially prepared to add a new member to your family, we’ve compiled a list of tips and tricks to set you on the right track to financial security.

Create a budget for one income

One of the most significant financial implications of starting a family is the sudden reduction in your income. If you are raising your child with a partner, creating a budget around one income is going to be a shock to the system if you don’t adequately prepare for it in advance. If you’re willing to take on the challenge, it’s a good idea to start budgeting as though you only have one source of income for some time before the baby is born, so that you can start making lifestyle changes and have time to get used to them before they become a necessity. This will also help you to build your savings so that you’re better prepared in case of an emergency.


According to the Institute of Financial Planning, it’s advisable that you set aside at least three months‘ worth of your income for emergencies before the arrival of your baby. You will have plenty of time throughout your pregnancy to save this amount so there’s no need to panic and deprive yourself of spending money on things you enjoy. As long as you set aside a certain portion of your income each month, you can relax in the knowledge that you’ve got enough put by to cushion the blow if an unexpected expense comes your way.

Make a will

Making a will might seem like something that you need to do at a ripe old age, but this couldn’t be further from the truth. The purpose of writing a will is to make sure that your valuable assets are protected when you die, and the most valuable asset in your life is now your new child, so it’s vital that you have a will in place so that you can create a plan for their future.

Writing a will might seem daunting, which is why hiring a professional will writer or solicitor is a good idea so that they can help you create a will that has every loose end tied up. This should set you back around £150, but it’s well worth it so that you don’t end up making mistakes. Read more about writing a will here.

Get life insurance

As a single person with no children or even as part of a working couple, it’s unlikely that you’ve been concerned about life insurance before. However, now that you have a child on the way, it’s vital that you get your life insurance cover sorted.

One of the most sensible life insurance options is a ‘family income benefit’, which is an insurance policy that pays a tax-free income annually rather than in a lump sum. This way, your money will be spread out over the years rather than all at once, so that you can handle it sensibly. Knowing that you have life insurance in place will provide you with added comfort knowing that your family will be taken care of should anything happen to you.

Sign up for the ‘Health in Pregnancy’ grant

If you are over 25 weeks pregnant, you are entitled to a tax-free payment from the government of £500. This is called the ‘Health in Pregnancy’ grant which was introduced in 2009 to support the health of expectant mothers before the birth of their babies. In order to receive this grant, you need your doctor or midwife to sign a claim form and then send it off to HM Revenue & Customs. The money will then be directly deposited into your bank account without any fuss.

Find out how much paternity/maternity pay you will receive

If you earn over £95 weekly and have been working at your job for over 26 weeks, you will be legally entitled to statutory paternity or maternity pay (SMP). With SMP, you will be paid 90% of your average gross weekly salary for up to six weeks. During the following 33 weeks, you are entitled to 90% of your weekly earnings. For more details about SMP, visit the government website. Your employer, however, may have set up their own unique SMP scheme, so it’s important to contact the HR department at your company so that you know exactly what you are entitled to.