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5 million people would struggle to get a top credit card: is your credit history invisible?

New research reveals more than five million people would struggle to get a top-rated credit card deal. So, is your credit history 'virtually invisible'? The post...
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New research reveals over five million people in the UK are ‘virtually invisible’ to the financial system. As a result, the majority of this group would likely struggle to get a top-rated credit card.

So, what else did the data reveal? And how can you improve your chances of getting a decent credit card deal? Let’s explore.


What did the research tell us about invisible credit histories?

According to Experian, 5,049,129 people in the UK have ‘insufficient information’ on their credit records.

As a result of this finding, it’s fair to say that this group would have difficulty accessing top-rated 0% credit card deals. That’s because in order to get credit you have to go through a credit check and be accepted. Lenders can often be choosy as they must reduce the risk of supplying credit to someone who wouldn’t repay their balance.

To make their decision, lenders use the services of credit reference agencies. These companies hold information on your financial past, giving them the power to determine your credit score.

So, if you’ve always been responsible with credit in the past by making on-time repayments and never busting your credit limit, it’s likely you’ll have a decent credit score. Obviously, if you haven’t used credit responsibly in the past then you’re likely to have a poor score.

The point is that in order to make lending decisions, lenders have to rely on your past behaviour. So, if you don’t have a credit history, or you’ve misused credit in the past, you’re unlikely to be eligible for the most competitive credit card deals.

Who’s most likely to have an invisible credit history?

Experian’s research highlighted how ‘credit invisibles’ come from a wide range of backgrounds, not just those on low incomes. For example, the research revealed that having a limited credit story is common among young people. This is perhaps not surprising given that young people haven’t had a lot of time to build up much of a history.

Recent immigrants are also likely to have invisible credit histories. The same applies to expats returning to the UK.

Interestingly, older people also have their fair share of credit invisibles. Experian suggests that this is partly because a sizeable number of older people have already paid off their mortgages. As a result, they have less need for credit and are less likely to have a recent track record of using credit responsibly.

In terms of regional differences, the data revealed that those living in Sheffield were the most likely to have an invisible credit record, with 17% of this group having an insufficient credit file.

Edinburgh, Lancaster and Fleetwood were other areas with high numbers of people lacking any sort of credit history. However, this may be explained by these areas having a high proportion of students.

Tacking the issue a ‘huge priority’

According to Jose Luiz Rossi, managing director of experian UK&I, the revelation that many people in the UK have a limited credit history is a problem that needs to be addressed. He explains: “Our latest analysis highlights just how far-reaching ‘credit invisibility’ is in the UK – it’s on all of our doorsteps, regardless of location. In this current economic climate, the consequences for millions of people could be devastating.

“Tackling this issue is a huge priority for us, and we’ve been working hard to find innovative ways to bring more people into the mainstream financial system. The solution to this challenge lies in a combination of industry-led financial education coupled with the use of new, relevant data sources which can help build out thin credit files and deliver better financial products and services for everyone.”


How can you boost your chances of getting a top-rated credit card?

If you have a limited credit history, your chances of getting a top-rated credit card deal are likely to be low. However, there are some easy rules you can follow to boost your credit score. Here’s the lowdown:

Consider a specialist ‘credit card for bad credit’. Credit repair credit cards are specifically designed for those with poor credit histories. So, get one, use it responsibly for six months, and you should see your score improve.
Get on the electoral roll. The simple act of registering to vote can help boost your credit score. See the website if you’re unsure how to do this.
Don’t make credit card applications on a whim. With an iffy credit score, you may be tempted to try your luck with credit card applications left, right and centre. However, every application leaves a mark on your file. As a result, it’s far better to check your chances of acceptance with a credit card eligibility checker before applying. 

Take a look at our guide on how to improve your credit score for more tips.

The post 5 million people would struggle to get a top credit card: is your credit history invisible? appeared first on The Motley Fool UK.

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