This is where parents come in. Whether its by supporting children staying at home longer than expected or by making contributions toward a wedding or a first house, mum and dad have always been the rocks in the otherwise unstable financial waters for young people. However, it seems they're now more important than ever with 23% of twenty-somethings admitting to using their parents as guarantors when applying for a loan.
Are mum and dad the right option?
The tightening of credit criteria has meant it is more difficult to get a credit card or loan, never mind access the most competitive rate. The more credit-worthy you are, the better your chances of being accepted for a deal and parents who have established a financial history can play a significant role in helping young people get on track.
Taking the role of guarantor means that the responsibility still lies with the youngster to make monthly payments. However, if those payments are not made, the guarantor will have to step in. This can be risky for parents as their credit rating could be hurt if their child fails to make payments - but it can help to establish good credit in the young person's name.
It can also open the door to more possibilities. Generally the credit industry feels more comfortable dealing with people who have a track record of paying off debt and as such you have more of a chance of making a successful application if you have a good credit history. If your parents have a good credit rating, you could therefore be able to get a more competitive deal.
The market-leading rates, such as the Platinum Loan at 7.5%, will still be out of reach. However, there are also several loans designed specifically for borrowers with guarantors - such as FLM Loans, which offers loans of £500-£3,000 and will accept anyone with a friend or family homeowner guarantor with a typical rate of 42.6%.
How can you build a credit history?
You may already have some form of credit history without being aware of it - for example, if you have a mobile phone contract or have had a credit card in the past. If, for example, you have missed the odd payment in the past, however, this will have damaged your rating, meaning you should look for ways to bolster your score.
The best way to do this is to ensure that all your payments to creditors are made on time. If you are forced to miss a payment, inform the creditor and make the payment the following month. Simple steps such as registering on the electoral roll, maintaining employment and a fixed address for a period of six months or more, and filling out credit applications correctly will also boost your rating.
Other sensible steps include closing down any credit card accounts you no longer use and contacting a credit reference agency such as Equifax or Experian to obtain a copy of your history and ensure there are no mistakes on your file.
One of the easiest types of credit to get is a store card - however, these should be approached with caution. They're an easy way on to the credit track and are often purposefully targeted at young people, but they can prove very costly as they generally charge huge interest rates. According to Conservative Party research, people in the UK owe £2.2billion on store cards and it's easy to see why when many popular retailers charge interest that hovers above 25% - including Burton, Dorothy Perkins, Miss Selfridge and Warehouse, which all have a rate of 29.9%.
If you do have a favourite store that you shop at regularly and consider taking out a store card then you must ensure you can make the repayments in full every month as missing payments will harm your credit score and only make the problem worse.
What other options are there?
You can also apply for credit cards - but the key is to not apply for deals that simply aren't available to you. Though it can be tempting to look at the market-leading credit cards, chances are you won't be accepted for these offers as they are only available to people with good credit histories. And being rejected for a credit card application will further harm your credit score.
If you're looking for a credit card to build your credit rating, the Barclaycard Initial is designed to help you get on track with a credit limit up to £2,000 and a typical rate of 27.9%. The Halifax Standard and Bank of Scotland Standard cards both offer a rate of 27.9%, while the Capital One Classic has a rate of 34.9%.
For an overview of the credit cards that are available to you based on an assessment of your credit profile, use our Smart Search tool.
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Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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