Take Secured Loan to Build Credit History?

[Deleted User]

Hi,

This is only my second post but I have been lurking in the debt-free wannabe forum for a while. Although not (really) in debt, I found it very inspiring and got lots of tips from everyone.

Sorry for the long post, but I need advice from the good people of MSE in regards to my credit history. I thought about talking to a financial advisor at my bank, but for some reason I doubt that they can offer objective unbiased advice! :rotfl:

After an identity theft attempt last year I consulted my credit report, and ... zilch, nada. No searches, no information at all, nothing. While this was good news at the time (no one trying to get a car on finance under my name for example), I think that this lack of credit history is not working in my favour.

I remember being declined by my phone operator when I tried to switch from PAYG to Bill Pay this summer for example, for the same monthy amount (now on a Bill Pay Sim only 1-month contract with a different operator).

I am an expat and have only been living here for 7 years, but I never borrowed any money or used a credit card, even in my home country. I just own a current account (no OD facility) and a savings account. I am also paying into a pension scheme through work.

I'd like to be able to apply for a mortgage in the not-to-distant future though, so I am looking into this a lot at the moment.

To build up my credit history I was thinking of taking out a very small secured loan at 13% Variable APR for the minimum amount 1,5K, is this a good idea?

My bank has this deal where if you have a savings account with them you can borrow up to 4 times your saving after 6 mths. The cash in the account will then be frozen until the loan is repaid in full. They don't call it secured loan but I think it is?

I should be able to make the repayments for such a small loan, but is it worth it? To be honest I don't NEED to take out a loan as I am doing ok financially and that's also why I don't want to take out a credit card (too many horror stories on this forum, and I am afraid I won't be able to manage this properly)

Wdyt?

happy_bunny_2

You could take out a credit card, buy food or fuel on it and pay it in full each month. Even one with a low credit limit would be better than paying unnecessary interest on a loan.

Best Make sure you are on the electoral role.

[Deleted User]

Thank you for stopping by happy_bunny, appreciate the advice!

[Deleted User]

Just wondering whether there is a way to avoid taking out a credit card in order to build my credit history? When I look at the debt-free wannabe forum all I see is credit card and payday loans debts? :undecided:undecided

longtermplanner

Joylimited wrote: »

To build up my credit history I was thinking of taking out a very small secured loan at 13% Variable APR for the minimum amount 1,5K, is this a good idea?

My bank has this deal where if you have a savings account with them you can borrow up to 4 times your saving after 6 mths. The cash in the account will then be frozen until the loan is repaid in full. They don't call it secured loan but I think it is?

I should be able to make the repayments for such a small loan, but is it worth it? To be honest I don't NEED to take out a loan as I am doing ok financially and that's also why I don't want to take out a credit card (too many horror stories on this forum, and I am afraid I won't be able to manage this properly)

This sounds like a simply dreadful idea.

Apply for a credit card - you will get a Vanquis card if you don't get anything else. Then use it every month for something small - one supermarket shop say. And pay it off in full every month so you don't get any interest charges at all.

As your finances are ok and you don't need to borrow money, this credit card will only be hard to manage if you are totally disorganised. It doesn't sound to me as though you are So it won't be a horror story.

danielhermann

I agree. Do not borrow just for the sake of borrowing. A Credit Card will work fine to create a credit history. Use it for local purchases, set the money aside and pay it in full when due. Do not borrow unless you have a specific purpose in mind and not enough funds.

somethingcorporate

Your idea is really terrible.

Get a credit card, use it for normal purchases and set up a DD to clear it in full every month.

[Deleted User]

somethingcorporate wrote: »

Your idea is really terrible.

:doh:Ok ok, will get a credit card, thanks everyone !!

londonTiger

Does anyone know how much improvement is provided by credit card stoozing vs taking a arranged loan for a set amount?

The pessimist in me thinks stoozing on credit cards provides marginal benefit and can only provide so much. If I was a lender someone whose taken out and repaid loans reliably is a better candidate.

longtermplanner

londonTiger wrote: »

Does anyone know how much improvement is provided by credit card stoozing vs taking a arranged loan for a set amount?

AFAIK they provide the same.

You can argue which shows a "better" borrower either way. The loan shows an ability to borrow a large chunk and repay it. the credit card shows an ability to borrow then repay and borrow more or resist temptaion to borrow more. Which is "better"?

Who knows, but lenders don't go in for this sort of complicated psychology. They look for making monthly repayments on time, simple.

[Deleted User]

Just a quick update guys, I applied for a cc with a 1000 limit but as I am a new(ish) customer the bank are deferring the decision until I have 6 months of history with them.