Ways to qualify for a loan when you have come of age

You must have come of age to borrow money, but qualifying for a loan after entering adulthood is not a cinch. You will be taken to be a risky borrower without any credit history at all, and therefore, hardly any lender will sign off on it.

Your credit report manifests your past payment behaviour. A lender cannot analyse your repaying capacity simply based on your income records. If you have any lender approved your application for loans for young people, you will likely be paying very high interest rates.

As soon as you enter adulthood, you should put in effort to build your credit history. A positive credit rating can help you save a lot of money down the line. Bear in mind that a credit history is not only required for qualifying lower interest rates, but it also makes certain aspects of life much easier.

Here is how having a good credit report can help you sooner or later:

• It will be easier for you to rent a flat. Landlords typically check your credit file to ensure you have a history of on-time payments. You might be refused to rent if you have no credit history at all, or if you get approval, the security deposit will be quite high. You may also need a guarantor.
• You can get utilities in your own name. A credit check is mandatory for anyone who has opened an account. The absence of your credit history means a higher deposit.
• You will be turned down for the most affordable deals if you do not have a credit history. Your lenders and credit card providers will assume you are a highly risky borrower and, therefore, charge high interest rates. It can eat up your budget whether you take out an emergency loan or a mortgage.
• If you are looking to apply for a job in the finance sector, you must be able to prove your credibility. Your chances of being hired are nil if you cannot do that.

Best ways for young people to build their credit rating

Now you know that how beneficial it is to have a good credit report. The next step is to find ways to build one. Here are some easy ways to help you build a credit file:

• Use Experian Go

Experian Go can help you build your credit score for free. After downloading the app, you will have to answer a few questions about your finances, and then you can start building your credit rating. You will get insight into some useful ways to keep your credit report up to snuff.

Chances are you have a very low credit rating. It is not always the result of falling behind on payments, but sometimes, your credit information is not enough to prove that you can handle multiple types of debts for a long period of time. In that situation, you can use Experian Boost. It will help up your credit rating by sharing tips on how to manage your money.

The transactions that Experian Boost considers include:

• Rent
• Payments to your savings and investment accounts
• Digital subscriptions like Netflix and Amazon Prime
• Your monthly bill payments

It takes a few minutes to connect with Experian Boost. Once you link your account, Experian Boost will scan your transactions to see if it can help you with the boost.

• Apply for a credit builder loan

Credit builder loans are also a good way to build your credit report, but they are quite different from traditional loans. A credit builder loan does not let you get money upfront. Instead, the lender will transfer money to your savings account, which is not normally more than £1,000, and you cannot withdraw unless you make all payments.

Bear in mind you will have to pay interest on each instalment. The interest rate will be quite high, but a few lenders return all or a portion of it once you have fully paid the loan. Make sure you will not face any difficulty paying back the debt. Analyse your repaying capacity before considering credit builder loans.

• Become an authorised user

You can build your credit history by becoming an authorised user on your parent’s credit card. If they use their credit card responsibly and have a good credit rating, becoming an authorised user will help you build your credit rating. You can obtain a credit card using their account, and your parent will be responsible for paying off your purchases.

On-time payments will help build your credit history; however, make sure that the credit card provider will report authorised-user activity. You cannot benefit as an authorised user if the credit provider of your parent’s card does not report such activities.

• Loans for young people

Apart from the aforementioned options, you can directly apply for loans for 18 year olds with no credit history. Because only a few lenders provide these loans, you should do research so you do not get turned down. Research is also important because it helps you compare interest rates.

Loans for young people carry very high interest rates because you are assumed to be a very risky borrower. Only if you are completely sure about your repayments should you take out this loan.

The final word

It can be difficult to qualify for low interest rates if you have very little or no credit history at all. As you know, you will need to borrow money in the future, so you should start building your credit report.

Loans for young people can help you, but they can be quite expensive. Not everyone might have enough money to pay off these loans on time. You should try alternatives as well. For instance:

• You can become an authorised user of your parent’s card.
• You can also use Experian Go. Experian Boost is helpful for those who have a very low credit rating.

Credit builder loans come in handy when it is difficult to use traditional methods to build your credit rating.