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If you've just graduated, or are about to graduate, the prospect of managing your post-student finances might seem a bit daunting. Especially when it comes to the credit score. Perhaps you're wondering how to build a credit score as a graduate. Or maybe you're not totally sure exactly what a credit rating is.
Well, don't worry — here are a few handy hints to get you set up and in good stead for mortgages and major purchases in the future.
The world of credit ratings can seem complex. There's a lot of misinformation out there, and knowing where to start with credit can be confusing, especially for those just graduating from university. Whether you're going straight into work, enrolling on a graduate scheme, or continuing with your education, this is the perfect time to start building a credit score.
If you're considering buying a house in the future, then building a credit score is a vital step to take. A good credit rating shows mortgage lenders that you can pay off debt. They try to predict your borrowing behaviour by looking at your past financial actions.
Although getting a mortgage is many people's motivation for building a credit score, there are other reasons you may want to boost your rating, too. If you have a low credit score, it indicates that you may not pay borrowed money back responsibly. As such, it can affect your overdraft arrangements, insurance premiums, phone contracts and whether or not lenders will offer you other types of loans.
With that in mind, let's explore how to build your credit score as a graduate.
When starting out on your credit-building journey, you may find you have what's known as a 'thin credit file.'
A thin credit file essentially means you have very little information on your credit report to prove your dependability. If you have few (or no) credit accounts, then a bank or lender may be unable to calculate a credit score for you.
It's important to note that having a thin credit file is different from having a bad credit score. However, both can affect your chances of getting loans. If you have a thin credit file, you have a blank canvas to work with and can build your score in a positive way. There are also some new lenders, like Abound, we look at the full picture of your finance instead of just a score.
To avoid the issue of a thin credit file, it's a good idea to start bulking it out as soon as you graduate — if not before. A longer credit history can improve your rating.
Monitoring your credit score is also a helpful way to know where you're at. It's vital to make sure all the information on your credit report is accurate. As with anything, mistakes happen! If there are any incorrect details or records, it may impact your credit score unfairly.
You can check your credit score by contacting one of the three major credit bureaus: TransUnion, Equifax, and Experian.
Whether it's your rent, utility bills, or phone bill, avoiding late or missed payments is an easy way to build credit. It shows you can manage your finances and are likely to make loan repayments on time.
However missed payments will result in lenders or utilities companies reporting your arrears to the Credit Rating Agencies and damaging your credit score, it is important to pay your bills on time.
The idea of getting a credit card might seem risky. However, when managed wisely, a credit card can help build your positive payment history. Making regular payments (and repaying them on time) can help your rating grow. But don't max out your credit cards, as this can have the opposite effect.
Making more than just the minimum repayments each month also indicates financial health and stability.
Applying for credit can move your score forward. But, while it might seem tempting to apply for lots of things at once to boost your thin file, there's the chance it may backfire and harm your credit score. So it's better to start with one to make sure you can manage the repayments effectively.
No, your student loan from the government won't impact your credit rating. However, if you take out a private student loan, this may affect your score.
As no borrowing is involved in a savings account, opening and using one won't affect your credit score.
Experian, TransUnion, and Equifax are the standard credit bureaus you can contact to find out your credit score. They each have different models for calculating credit ratings, and so the number they consider 'good' varies.
Experian considers anything over 700 a good credit score for a student or graduate. TransUnion states that anything over 661 is good (whether you're a graduate or not). And Equifax accepts 670 and above as good.
Ultimately, the higher your rating is, the better interest rates a lender is likely to offer you.
Your credit score may change any time new information is added to your report.
After graduating, you may come up against financial situations you haven't experienced before. Perhaps you need a loan for a rental deposit after moving away from university, for example. Or maybe you need to purchase a season ticket to travel to and from your graduate scheme. You might decide to apply for a loan to cover these large sums.
Unfortunately, applying for loans can be challenging when you have a thin credit score, and this is a common issue graduates face. If there's not enough information on your credit report, lenders may reject your application.
Fortunately, there are other options available. At Abound, we know that a thin credit file doesn't necessarily mean you're bad with money!
An Abound loan is affordable and flexible. It offers a simple and easy way to finance your costs as you start your new career. Representative 18,8% APR (variable). If you'd like to learn more, why not apply today?
