How to improve your credit score as a student
Here are practical ways to build your credit score and develop good financial habits.
5 reasons to care about your credit score
Do student loans affect your credit score?
Does a student overdraft affect your credit score?
What is a credit score?
If you apply for finance, lenders may calculate a credit score. They use it to decide what products and rates you may get, and how risky it may be to lend to you.
Your credit score can change over time. It’s based on your financial history and your situation. Some actions can help your score, while others can harm it. For example, missed payments can harm your score, while being on the electoral roll can help your score.
5 reasons to care about your credit score
From getting a phone contract to buying a home – your credit score can affect your lifestyle and future plans.
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It can affect your chances of getting creditIt’s likely that you’ll want to borrow money at some point. A good score can help you get approved for credit, while a bad score can stop you from getting approved. Fancy a gym membership or phone contract? Some companies run credit checks before offering you their products or services.
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It can impact the types of deals you’re offeredTo get the most competitive credit card rates, for example, you’ll need a good credit score. If you have a poor credit score, you may find you're offered a higher interest rate or a smaller credit limit. This means it can cost you more to borrow money, and you may be limited in the amount you can borrow.
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Employers may be able to see your credit historyPotential employers can't see your credit score when you apply for a job (as it contains personal information). But they can see a modified credit report with your consent. A healthy credit report can work in your favour. But if you have a history of missed payments, you may be seen as a high-risk candidate, especially if the role involves managing money.
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It can affect your ability to rentWhen renting a property, the landlord may check your credit history as part of their screening process when choosing tenants. After all, they’re trusting you to pay rent on time, and they’ll want to see that you’re a reliable tenant.
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It can affect your ability to get a mortgageMany people hope to buy their own place one day. But did you know your credit score can affect your mortgage application? Having a good credit score can bring you closer to picking up the keys.
Do student loans affect your credit score?
A UK government student loan doesn’t affect your credit score and doesn’t appear on your credit report. If you apply for finance in the future, a lender will only know you have a student loan if they ask on the application.
Other types of borrowing, such as a student credit card or student overdraft, will appear on your credit report.
Does a student overdraft affect your credit score?
Many banks offer student accounts with interest-free overdrafts. A student overdraft will appear on your credit report, but it won’t affect your credit score if you manage it carefully.
If you use your overdraft, pay it back on time. Try not to go over your arranged overdraft limit. Going over your limit can lower your credit score. It may also suggest you’re finding it hard to manage your money.
If you don’t use your student overdraft, it will still appear on your credit report but will show with a balance of £0.
How to build a good credit score as a student
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Join the electoral rollJoining the electoral roll is an easy way to boost your credit score, especially if you’ve moved into student accommodation or a shared house. You can register online, and you may be able to register at two addresses (your term-time address and your home address).
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Pay your bills on timePaying your bills on time can help build your credit score. Late payments could have a negative impact on your credit score. Direct debits and standing orders can help you pay on time by moving money automatically on a date you choose.
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Don't keep applying for creditIf you get rejected for finance, it can be tempting to apply again straight away or try another provider. Try to avoid this. Multiple applications can be recorded on your credit file and may affect your credit score. If you want to see what rates and types of finance you might be eligible for, consider eligibility checkers that use a soft credit check. A soft credit check won’t be visible to other lenders and can help you understand what you are likely to be approved for.
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Consider taking out a student credit card
Credit cards can be a way to start building your credit score. Some banks offer student credit cards, which often come with a lower credit limit. If you’re confident you can make the repayments, a student credit card could be worth considering. Remember credit cards aren’t free money and should be used responsibly.
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Check your credit reportYou can check your credit report with the 3 UK credit reference agencies: TransUnion, Experian and Equifax. This helps you check your personal details are correct. If something looks wrong, ask the agency to fix it. Mistakes can harm your credit score. Checking your own credit report won’t affect your credit rating or credit score.
Key takeaways
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A credit score can affect what finance you can get and the rates you’re offered. It can change over time.
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A UK government student loan doesn’t show on your credit report, so it doesn’t affect your credit score.
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A student overdraft and student credit card can show on your credit report. Staying within limits and paying on time helps protect your score.
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Register on the electoral roll and pay bills on time to build a positive track record.
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Avoid making lots of credit applications close together, and check your credit report with TransUnion, Experian and Equifax to spot mistakes.
