How to improve your credit score as a student

Richa Ved offers insights on boosting student credit scores

The practice of maintaining a good credit score is (annoyingly) rarely taught but is more important than you might think.

If you’re unsure of how to build your credit score or what a credit score even is – don’t worry, you’re not alone! And while you might not have any credit history as a student, now is the ideal time to start building one.

You’ll soon look to buy your own house, take out a personal loan, or insurance, or get a credit card. Lenders will need to run a check to review your creditworthiness, and that’s when your credit score comes in.

Your credit report is a detailed record of your credit history and financial behaviour used to calculate your score. A high score is proof of responsible financial habits, while a poor score might mean you pose a financial risk to lenders.

To know more, check out the Money Word of the Week – ‘Credit Score’.

Tips to build and improve your credit score

Be on top of your bills

One of the fundamental steps you can observe early on is to make regular monthly payments and prevent any accumulation of debt. Adopting good credit habits by regularly paying off your rent, utility bills (like water, electricity or WiFi) and mobile SIM plans, will reflect positively on your score.

Avoid procrastinating on payments and steer clear of frequent overdrafts as they discourage lenders from trusting you with their money. 

Get on the electoral roll

Most people don’t realise that registering to vote at your current address helps boost your credit score. It provides lenders with a verification of your identity and home address.

It’s easy to forget to sign up after you move away from home and it might seem like a hassle, but with the online registration service, it’ll take about five minutes of your day. If you cannot register for any reason, such as your immigration status, promptly send a Notice of Correction to a credit reference agency to rectify your score.

Keep in mind that moving homes too much or switching contracts such as mobile plans, banks or rental agreements often might adversely affect your score.

Manage your credit

If you have proof of income and can make regular payments, get yourself a credit card (or a student or secured credit card). However, if you lack proof of income, becoming an authorised user on a parent or guardian’s credit card is an option.

Frequent use and on-time repayments of these bills will demonstrate good credit management during future checks. However, if you’re rejected for any reason, don’t keep reapplying as several hard credit checks in a short period might tamper your score.

Don’t have several cards or unused accounts open simultaneously, as consistently using fewer accounts for longer durations might make you more appealing to lenders. Plus, ensure your expenditures remain below 25% of your borrowing limit.

Avoid cosigning

Cosigning for your friends or family’s accounts might reflect badly on your score if they fail to make payments.

Similarly, if you have financial associations, such as joint mortgages or bank accounts, with anyone, their credit history will also influence your score. Future lenders might examine their records too. So, be mindful of who you financially associate yourself with!

Monitor your credit report

It’s very important to keep track of your credit accounts and check your report at regular intervals. If you come across any errors or any suspicious activity, you should raise a dispute with a Notice of Correction. Remember that having no credit history is as detrimental as having a poor one.

In the UK, your score is tracked by credit reference agencies such as Experian, Equifax, and TransUnion, and you can check your score for free once a year. Every agency has its own defined standard of a good score. For example, Experian rates a good credit score as 880 out of 999.

Use your education loan wisely

While your student loan is not reflected in your credit report, consistently repaying it after your graduation will demonstrate early adoption of good credit habits.

Your student loan is limited, so use it primarily to fund education-related expenses and avoid overspending on other matters. Taking on any additional forms of credit during your student years will affect your credit score and add debt to your record. 

It’s important to be careful from the very beginning and inculcate discipline. A good credit score will minimise debt costs for you in the future and give you access to better financial opportunities.

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