Going into your overdraft to fund your university life, whether for wild nights out or buying course books, could affect your financial future. Since university tuition fees tripled to £9,000 per year in 2010 and are set to increase by another £250 this autumn*, it’s no surprise that many graduates are left with a huge amount of debt. In fact, some graduates in 2016 faced debt repayments in excess of £41,000**. Consequently, it’s a good idea to start taking charge of your financial future as soon as possible and this means thinking about your credit score and report.
Your credit score and report show lenders how good you are at repaying your debts, whether you’re paying them in full and on time. Think of it as a CV for lenders who will use the information when assessing your credit application. One of the questions many people have is what does being a student do to your credit score? So here we’ve summed up a few facts and fictions about the effect of student life on your credit profile.
Do student loans affect a credit score? (UK)
Whilst it is a form of credit, student loans won’t appear on your credit report or affect your credit score. However, when applying for a mortgage, loan or credit card you may be asked about it in your application.
What is a student account?
Opening your first bank account is a rite of passage for most students and many banks now offer student accounts with interest free overdrafts up to a certain limit. With university life being as much about wild nights out as it is about your degree for many, it can be tempting to use this overdraft to fund the lifestyle but is it worth it? An overdraft is a type of credit where you’re essentially borrowing money as an advance from your bank. It’s important to remember that it isn’t free money and you will have to repay it after you graduate.
If you go above your overdraft limit you may have to pay additional charges. This is when your credit score could be affected. Abuse your overdraft during university life and you could suffer the consequences. Constantly going above your overdraft limit can have a negative impact on your credit score and you may find it difficult to be approved for future borrowing opportunities, such as a mortgage, credit card or loan. In other words, don’t let the ‘YOLO’Ϯ life hinder your financial future.
What can affect your credit score?
Mobile Phone Contract
This is one type of credit that people don’t realise can affect their credit score. A mobile phone bought on contract lets you pay for the phone and the monthly allowance (calls, texts and data) in instalments each month until you pay it off. So if you pay for your own phone bill directly out of your account, make sure you pay them on time every month in order to protect your score. A bad credit score can also affect your ability to take out a future mobile phone contract, as well as other credit.
Tip: Set up a direct debit for all your essentials bills so you don’t forget to pay them off or pay your bills first each month before you begin spending. It may be difficult when you only get your maintenance loan at the start of every semester so a budget is handy.
As well as living away from home, for many students university will be your first time renting. By your second year you may choose to share a house with friends and rent through a private landlord or estate agent. Living with friends is exciting but it means you may also be financially linked to them if you decide to open a joint account from which to pay your bills. Also, if you have someone act as a guarantor on your account, such as your parents, then you could become linked to them.
A joint account can be a good idea, since it prevents the bills being in just one person’s name who will then be responsible for paying them. But remember to close the account and remove any financial links when you no longer need it prevent the other person’s finances impacting your credit score.
Enrol on the electoral roll
If you’re not already registered on the electoral roll then it’s a good idea to get on it whilst at university as it can help to build your credit profile. Another one to add to your checklist once you’ve finished university is to update your electoral roll information to include your current address. If you register yourself on the electoral roll whilst living in a student house then this will apply to you. Whether you move back in with your parents or find a new place, the electoral register needs to be updated and not just for voting purposes. Electoral data is one of the simplest ways to verify a person’s identity and can impact your credit report and future ability to borrow.
Can your credit score affect you getting a job?
Once you’re no longer a student and have graduated, you’ll likely be looking for a job and once again your credit report may be involved in the process.
As part of background checks, some employers may want to check your credit report to verify your identity and ensure you are who you say you are, check how financially responsible you are if it is an important factor of the job or check that you are not under financial strain in case this were to have an impact on your performance, especially for a highly demanding job. However, they cannot check your credit report without your permission and will only be able to see information held in the public records, such as electoral roll registration and whether you have any County Court Judgements or insolvencies held against you in the last six years.***
As with all checks on your credit report it will be classed as a search but employer checks are soft searches, which means it won’t negatively affect your credit score and won’t be visible to lenders.
You may not even have a credit score
Lastly, what being a student means to your credit score is that sometimes you may not have enough of a credit history to form a credit report. If you don’t have any experience of borrowing and paying back money and have never had any of the above forms of credit, then a credit report and score won’t exist. When you do decide to take out credit, check whether you have a credit report first. You can do with this with Noddle for free (forever), and if you don’t have a credit report yet, we’ll give you access to Noddle Credit Coach for free so you can start to build up your credit history.
Your financial future can be impacted from as early on in life as when you’re a student so whilst you may dream of owning a house at some point, the reality of it begins now. So be aware of how you manage your money whilst at university or during further education, you’ll thank yourself later.
***A CCJ is a court order issued to someone who has failed to repay money they owe. An insolvency also referred to as bankruptcy is when an individual is unable to repay their debts.
Ϯ You only live once