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How to build a new credit file

how to build a new credit file

Whether you have a current bank account or not I advise you to open a new one.

However, many banks will refuse to open a standard bank account as they'll always run a credit check. So if yours is bad the answer will almost certainly be no.

But Natwest has an excellent bank account, called the STEP account (see link below), which is specifically designed for people with bad credit. It's the most basic account available and only comes with a Debit/Cashpoint card. The account offers no chequebook, no overdraft facility, and certainly no credit card.

Open the account and make sure your monthly pay/income goes into it and then run it responsibly. Operate the STEP account in this fashion and within 1 year you should be offered an upgrade which comes with a chequebook.

Keep running the account in a responsible manner and within 12-24 months you should be offered an overdraft in the £500 - £1,000 region as well as a Credit Card.

What this step is achieving

A number of different things are happening when the above strategy is followed.

If you've read Credit Files - The Basics you'll know a personal Credit File doesn't take into account your salary/income or spending habits. However, the banks use 2 separate credit ratings -

  1. Your official one (the one you can obtain from Experian or Equifax), and
  2. Their own in-house scoring system which looks at how you've been conducting your financial affairs with them

Like a standard credit file one of the things this in-house scoring system will look for is responsibility. By using the strategy above - opening a STEP account and running it in a responsible fashion - you'll be building a solid internal credit rating with Natwest .

This is the reason why over a 1-2 year period you should be offered upgrades and further products such as an overdraft facility and also a Credit Card.

It's common sense isn't it as the more good banking you do with Natwest the more comfortable they'll be in not just in continuing the business relationship but also expanding it (chequebook, overdraft, credit card etc). It's like a snowball effect, the further you head downhill the bigger/stronger you become.

Why the overdraft and credit card are important

Step 2: Intelligently apply for and use more credit

It's a myth that people with bad credit are automatically refused all Credit Cards. Most people can still qualify but they can't always choose the cards they want. Instead they have to apply for a specialist Card that is designed for people with suspect credit ratings (see below for more details).

Yes, these cards all have high interest rates, usually around 30% - 40% but this is irrelevant because they're not going to be used to borrow money.

Important: It's imperative to get organised when paying the bill

I define 'paying on time ' as paying at least 1, and preferably 2 weeks before the official due date.

Category: Credit

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