This article will outline what a credit score is and why it is important to manage it during your time at university.
A credit profile documents how we manage our money and it is particularly relevant to students because mismanaging your money can have a negative effect later on in life, for example if you apply for a mortgage. But it’s also about the here and now, it can affect your ability to get a mobile phone contract, car insurance and even a bank account.
A bad credit profile could even potentially have an impact on your career, as certain types of job need you to have a credit check. Therefore it’s important that you understand how your credit profile works and try to keep on top of it.
When you apply for credit you will be 'scored' by the lender. This helps them predict your future behaviour and will help them decide if they will lend you money or not and, where relevant, set your credit limit and the interest rate they offer you. The lender will score you points based on the information you provide on your application form, for example your income and length of time at your address. They will then refer to information held centrally by the credit reference agencies.
Credit Reference agencies hold your entire financial history. Lenders will look at activity from the last six years and how you are managing any credit accounts you have at the moment, and use this information to make their decision.
If you have a credit card, for example, this will be on your profile – and it will show if you have missed any monthly payments or paid them late. If you have a mobile phone contract, your monthly mobile payments will be displayed, and some utility companies share information on whether you are paying your bills on time. It also has public information for example: if you have received a County Court Judgement in the past, or if you’ve ever been bankrupt.
You can see now how important it is to manage your money. Think about it in terms of lending money to a friend. If you know they are not very good at paying money back or are always late paying you back, you are more likely to say no to lending them any more.
How to check your credit score
There are three main credit reference agencies, Equifax, Experian and CallCredit. These all hold information on you which lenders use when making their decision. There will be a cost involved to check your profile but in most cases you will get a free trial when you first sign up but make sure to cancel before the free trial ends to avoid a monthly fee.
We would recommend checking your files at least once per year to make sure the information held about you is correct and it is also a useful tool to check against identity fraud.
How to improve your credit score
If you have a bad, poor or average credit score there are a number ways you can improve it.
Look at doing the following:
- Get yourself on the electoral role - it’s unlikely you will get approved for credit if you’re not registered to vote.
- Make sure you don’t miss any payments and make sure you pay on time
- Don’t apply for too much credit in a short space of time
- Don’t withdraw cash from your credit card