Loans for young people: your first credit guide

Most young people make their first credit decision with very little on their credit file. It often comes with a first job, a first tenancy or a first phone contract. That isn’t the same as bad credit, and lenders treat the two differently.

A thin file changes who will lend, what they’ll offer and what it costs. Early decisions matter too, because a missed payment now can follow you to tenancy checks and mortgage applications for years.

This guide covers what lenders look at and how to build a record from scratch. It also covers what to do if borrowing isn’t the answer yet.

Can a young person get a loan?

Yes, once you’re 18. But approval is never guaranteed, and a new credit file gives lenders less to go on. Some lenders also set their own minimum age above 18.

Your age isn't really the problem. What a lender can see is. Think about a typical first year out of school. You might have a part-time job that started in September and a phone on a parent’s contract. You might live in halls or a shared house that changes every summer. While none of it is bad, none of it proves you can afford a loan either.

That doesn't rule you out. Lenders work with what they can check today. That's your pay, what already leaves your account each month, and whether you're on the electoral roll. Each of those has a fix, and the sections below go through them.

Where are you starting from?

The right first step depends on where you're starting.

Nothing on file yet. You've never had a contract, card or bill in your own name. Start by getting something onto your file, and registering to vote is the easiest way.

A thin file. You have a current account and maybe a phone contract or student overdraft. Lenders can see you exist but can’t see a pattern yet. A few months of on-time payments gives them one.

Some history. You've been working a while, pay your own bills and might have a car agreement. The risk now is undoing it, usually by applying for several things at once.

None of these is a bad place to start. The trouble comes from borrowing before the groundwork is done. A declined application leaves a search that the next lender will see.

A credit file isn't a verdict on you, and there's no single national score. Each credit reference agency calculates its own, and many lenders set them aside for their own assessment. Lenders look for a record of how you handle credit. That’s why this guide focuses on building that record rather than chasing a number.

I have no credit history: what will a lender actually look at?

A thin file is not a bad file. Lenders can’t see much history for a young adult. They lean more on what they can check right now.

What they typically look at:

• Your electoral roll registration at your current address

• How much you earn and how regular it is, including apprenticeship pay, shift work and self-employment

• Your committed outgoings: rent, phone, subscriptions, instalment plans, any existing credit

• Bank statement patterns, often read through open banking, including returned direct debits and gambling transactions

• How many credit applications you've made in the last few months

• Your age: no UK lender can lend to anyone under 18, and some set their own minimum age higher

The lenders on our panel run a soft search first. Checking what you might be offered won’t affect your credit score, and other lenders can’t see it. A full credit search happens later if you go on to apply. We're a credit broker, not a lender: the lender decides, prices and pays out. You can check any firm on the FCA Register before you deal with it.

If you've just turned 18, the picture is the same, only thinner. Your income may be a few months old, and you may not be on the electoral roll yet.

What a lender can see on a new credit file

A new credit file gives a lender less to work with. That changes what matters in an application.

How do you build a credit history from nothing?

Start with the free steps. Register to vote at the address you live at, since lenders use the electoral roll to confirm who you are. Put a bill in your name if you can, even if it's only the broadband. Then check your free reports from Experian, Equifax and TransUnion for mistakes.

After a few months, add one small credit product, such as a credit-builder card or a SIM-only contract. Use the card for things you'd buy anyway and set a direct debit to clear the full balance each month.

Then leave it alone for a year. It'll feel like nothing is happening, which is the point.

Two things undo the work quickly. The first is applying for several things in a few weeks, which leaves a cluster of searches. The second is a missed payment. One on a small phone contract counts the same as one on a loan.

Does Student Finance count as debt?

Not like most debt. Student Finance doesn’t appear on your credit file, but lenders may see the deduction on your payslip. It’s taken from your pay only while you earn above your plan’s threshold. It falls if your income does.

The exception is a mortgage application, where lenders count the monthly deduction against your take-home pay.

Which student loan plan am I on, and what does it cost me?

Not every student is on the same plan, and the terms differ enough to matter for forty years. If you started an English undergraduate course in September 2023 or later, you're on Plan 5.

Current thresholds, as published by the Student Loans Company on gov.uk:

• Plan 1: 9% of income over £26,900 a year, written off 25 years after the April you were first due to repay

• Plan 2: 9% over £29,385, written off after 30 years

• Plan 4, for Scottish students: 9% over £33,795, written off after 30 years

• Plan 5: 9% over £25,000, written off after 40 years

• Postgraduate Loan: 6% over £21,000, on top of any undergraduate plan

Plan 5 has the lowest undergraduate threshold and the longest write-off period so far. Repayment runs through PAYE, so it’s worked out on each payslip, not your yearly pay. A month of heavy overtime can trigger a deduction even if your yearly pay is below the threshold. Thresholds usually change each April, so check what you repay on gov.uk rather than this page.

What does my overdraft actually cost me?

An overdraft feels free because no bill arrives, but it isn't. Since April 2020, FCA rules have required banks to charge a single annual interest rate on overdrafts. Banks can’t add daily or monthly fees, and an unarranged overdraft can’t cost more than an arranged one. Your bank shows that rate as an APR. Multiply it by your usual overdraft balance for a rough yearly cost, before you've repaid anything.

Worth doing this week:

• Ask whether your account has an interest-free buffer, and how large it is

• Treat a 0% student overdraft as a debt with a deadline: banks step the limit down after you graduate

• Set a low balance alert instead of relying on the buffer to catch you

• If you live in your overdraft permanently, that is a debt to plan down, not a balance

A permanent overdraft never shows up as a missed payment. That is exactly what makes it easy to carry for years.

Do buy now pay later and subscriptions count against me?

They do. Since 15 July 2026, the FCA has regulated Buy Now Pay Later as deferred payment credit. This covers plans from a third-party lender offered through a retailer. The lender must check you can afford it before you commit. It must tell you clearly what you owe and when. You can also complain to the Financial Ombudsman Service. Credit offered directly by the retailer itself sits outside those rules, so check who the lender actually is.

What young borrowers underestimate:

• Three orders split across six weeks is three live credit agreements running at once

• Missed instalments can be reported to credit reference agencies and passed to debt collectors

• Lenders read bank statements, so instalments count as committed spending on any later application

• Returning the goods does not always stop the plan; refund and schedule move separately

• Gaming top-ups, streaming, and food delivery stack up on a statement the same way

Add it up before you apply anywhere; the MoneyHelper budget planner gives you the real monthly total. Two people on the same wages can look very different to a lender. The difference is often a stack of instalments, subscriptions and a phone contract.

Which borrowing traps catch young people out?

The most damaging ones rarely look dangerous at first.

What should you try before a loan?

Grants, council welfare schemes, interest-free DWP help and credit unions are covered in our guide to alternatives to payday loans.

If you’ve been in care, your local authority usually offers care leaver support up to age 25.

Is the car finance I have been offered the cheap option?

For many young people, a car is the first big thing they borrow for. It’s also where the biggest avoidable costs sit. Forecourt finance is rarely the cheapest money available.

Before you sign anything:

• Get an insurance quote first. Under 21, the premium can cost more each year than the finance, and it changes which car you can afford

• Compare hire purchase, PCP and a plain personal loan on the total amount payable, not the monthly payment

• On PCP, you hand the car back or pay a large balloon payment; ask what ending it early costs

• Zero deposit deals leave you owing more than the car is worth for most of the agreement

• A credit union loan, or a cheaper car bought outright, often beats a longer agreement

If you financed a vehicle between 6 April 2007 and 1 November 2024 and were never told the dealer earned commission, the FCA's car finance claims page explains how to complain and links to a template letter for each lender. It is free to do yourself; no claims company needed. Expect it to be slow. The FCA page shows the scheme’s latest status.

When is a loan from our panel the wrong answer?

Some situations call for advice, not a loan. Do not start an application if:

• You are borrowing to make a payment on another debt. That is the first turn of the spiral, and free advice helps more than a new agreement

• The money is for gambling, trading or crypto

• You are saving for a mortgage deposit, because recent short-term borrowing changes what a mortgage lender will offer

• Someone else has asked you to apply for them, or wants the money sent to their account. The debt would be yours, not theirs

• Someone has offered you cash to receive a payment into your account. Refuse. Banks close accounts over this, and a fraud marker can shut you out of banking for six years

Loans introduced through this panel run from £50 to £5,000, at rates from 9.3%. High-cost short-term loans are price-capped by the FCA; APR explained shows how the cap works. A long term makes the monthly figure small and the total large, so ask for the total repayable first.

What if I am already struggling to repay?

Tell the lender before the payment fails, not after. FCA rules require lenders to treat you fairly if you’re in difficulty. They must consider forbearance, such as a reduced payment, a short pause or frozen interest. That is a rule, not a favour, and it matters more at your age. A default registered at 20 is still on your file at 26. It sits behind every tenancy check and first mortgage application in between.

The order to do things in:

• Message the lender in the app or in writing, and keep a copy

• Get free debt advice the same week from StepChange or National Debtline; never pay for it

• Ask your bank to stop the continuous payment authority if paying would leave you unable to eat or pay rent

• If the lender will not help, complain. Then take it to the Financial Ombudsman Service, which is free and can order the lender to put things right

An arrangement to pay and a default both show on your credit file. A default is treated far more harshly. Talking early keeps you on the right side of it.

Common questions

Can I get a loan with no credit history?

Possibly, but approval is never guaranteed, and you'll have fewer options. Lenders rely on your income, your outgoings, and the electoral roll, rather than your history. Building a record for a few months first can widen your options.

What’s a good first credit product?

There isn't a single right answer. Most people start with a credit builder card or a SIM-only phone contract. Keep the balance low and clear it in full by direct debit. It's the habit that builds your file, not the product.

My parents have bad credit. Does it affect me?

Not unless you have a joint account or joint credit with them. Your credit file is yours alone from 18.

Is a payday loan a good way to build credit?

No. Repaying any credit on time adds to your record, but a high-cost loan is an expensive way to do it. One missed payment can also undo months of good ones. A credit builder card or a phone contract builds the same history for far less.

Does being on the electoral roll help?

Yes. Lenders use it to check your name and address, and some will decline you if you're not on it. Registering on gov.uk takes about five minutes.

If you're under 25, The Mix (0808 808 4994) and The King's Trust (0800 842 842) also offer free support.

If you do decide to borrow, one application goes to our panel of FCA-authorised lenders. Each lender runs a soft search, which other lenders can’t see.