What is my credit score?
Your credit score is something which you build up over time based on your financial footprint. Each time you make an application for credit, which can be a new bank account, a mobile phone contract or even a utility such as gas or electric, a mark is made on your credit file to build up an impression of your financial history. Applications for credit count as a relatively small factor of your credit score. More important factors include the amount of credit currently in your name, the amount of late or on-time payments and of course any defaults or bankruptcy.
Generally speaking, the more credit you have in your name (which is being paid off on time each month) the better your credit score will be, as it shows creditors that you are capable of taking out debt and paying it off without problems, which portraits you as the perfect lender.
Can I get credit as a student?
Most of the major student bank accounts also offer a student credit card facility. Acceptance for a student credit card will usually be stricter than the bank account.
For most students their credit score will be average as they haven’t had credit in the past due to their age. However for those who have had credit, such as a mobile phone contract, this could make their chances of acceptance either significantly better or worse depending on their repayment of previous credit. For those who have paid their mobile phone contract on time each month, their chances of being accepted for the student credit card will increase.
How can I build my credit score as a student?
The first thing to do is get a student bank account. Student bank accounts come with interest free overdrafts of up to £3000 – you’ll never find lending rates as generous as this again so take advantage while you can!
Although opening a student account won’t affect your credit score in a major way, how you manage your account will. Your credit report has a monthly update of whether your account is overdrawn or not, so always remember to keep in the black (This includes your agreed student overdraft).
The next step is to take out a student credit card. The credit limit on the card will most likely be £250 - £500 – this is more than enough to improve your credit score. Try to make all day-to-day purchases on your credit card, such as food shopping. Make the full monthly payment on time to avoid any interest and you’ve just taken the first major step to building a good credit score. Continue to do this throughout university and you’ll have a gleaming credit score on graduation.
Other ways of improving your credit score include taking out a mobile phone contract. As before, this must be paid on time each month without fail. If you miss just one payment the effect on your credit score could be more of a loss than the entire previous 12 months of paying on time.
Why should I build my credit score as a student?
Without a good credit score you will be unable to get a mortgage, rent a property, take out car finance and in some cases even get a job! Remember to never take out credit if you can’t afford to pay it back.