Money can be tight when you are studying and for many students obtaining credit is the only way they can put food on the table and finish their studies. But there are resources which can help students to manage their finances and ensure they have the best financial products for their needs.
Often the decision to study brings with it the responsibility of managing your own finances for the first time. Many students are unaware of how poor financial management can affect their lives long after graduation. If you use any form of credit while studying, you will start to build a credit score.
What is a Credit Score?
This is a numerical value representing a credit reference agency’s evaluation of how well you manage your financial affairs. The score is typically between 0 and 1000 and the higher the score the better.
Your credit score is based on your credit report, which details your credit history, any missed or late payments and anyone you have a financial relationship with. Any missed or late payments will reduce your score and can stay on your file for several years.
Whenever you apply for any form of credit, such as an overdraft or credit card, lenders will review your credit score to determine your reliability as part of the application process. Remember that services you don’t pay upfront for, such as gas and electricity, can also affect your credit rating if you fail to pay on time. So even if you don’t have any credit cards or overdrafts you are still likely to be building a credit score if you are living independently.
Maintaining a Good Credit Score
There are several steps you can take to ensure your credit score is not adversely affected during your time as a student. The simplest way is to stay current with all your bills. Write down all your financial commitments, from mobile-phone contracts to utilities and credit cards and set up a direct debit for each bill. You can set the direct debit to the minimum payment and make extra payments on an ad-hoc basis when you can afford to.
Make sure your direct debits don’t cause you to go over your agreed overdraft limit. Going over your limit can lead to extra charges, which can have the knock-on effect of leaving you unable to meet your direct debits the following month. This can quickly lead to negative entries made against these accounts in your credit report and leave you struggling to get out of a cycle of late-payment fees.
Keep a written budget of your income and expenditure to ensure you can afford to meet the cost of any monthly repayments before taking on any new credit. If you do run into trouble it’s essential that you communicate as early as possible with your creditors.
Explaining your situation and asking for help may lead to your bank offering a temporary overdraft increase or the credit-card company agreeing to a one-month payment holiday. Try to be proactive and look for ways to solve the problem before it’s too late and your credit report is affected.
It’s also a good idea to enrol on the electoral register and you can do this by contacting your local council. This boosts your credit score as it shows you have a fixed address and offers lenders some reassurance that you can be contacted in the event of any problems. The longer you have been at the address the better, so some students opt to register at their parents’ home.
Student bank accounts and overdrafts vary considerably, so take time to compare your options and ensure you have the best products. Look for banks that are sympathetic to the financial challenges faced by students. Some banks will offer flexible overdraft terms or a fee-free period if you do go over your agreed limit.
Your credit score will affect your ability to get a mortgage and credit reports have become a common part of the application process for many professions. There are some professions that exclude candidates with a poor credit score, such as banking and the police service, so don’t underestimate the importance of looking after your financial health.
If you do find yourself in difficulty there are many sources of support available. Speak to your student-services department or visit a local Citizen’s Advice Bureau for free and confidential advice.