When you first leave home to go to university, you may find yourself in a position where you have to borrow money. Putting to one side your student loan, there are credit cards and overdrafts that you might use to keep the cash flowing. You borrow some money, and pay it back later.
Lenders keep track of this second part through something called a credit rating. It’s what determines your reliability, and it may effect the ease with which you’ll be able to secure finance later in life.
What is a Credit Rating?
Your credit rating is calculated based on your credit history. In the UK, it’s done, for the most part, by one of a trio of agencies whose job it is to provide lenders with information about who it is that they’re lending to. This way, unscrupulous borrowers can’t simply avoid scrutiny by moving from one clueless lender to the other – they’re all talking to one another. These agencies each employ entirely different rating systems, so they’re not directly comparable.
What can it impact?
It will help to determine how much the lender is willing to lend, and how much interest to charge. The exact calculation may vary from lender to lender, but it can impact everything from insurance premiums to mobile phone contracts.
In short, it’s worth establishing that you’re a safe pair of hands early on in order to avoid hassle and expense further down the line.
How to improve your credit score
The easiest way to improve your credit score is to be a reliable borrower. Borrow some money and pay it back promptly. More recent borrowing is given greater weight in your credit rating, and thus it’s fairly straightforward to turn things around.
Being on the electoral roll will also help enormously. If you’re not registered to vote, then correct this to quickly improve your score.
Any county court judgements against you for debt will also be considered black marks, as will frequent house moves. If you’ve always moving, then you’ll be viewed as difficult to pin down – and thus difficult to justify lending to.
Sometimes, your credit score might suffer due to a mistake. It’s therefore worth checking your credit report periodicallyto check that everything’s in order.
What if it’s really bad?
For students, there are specialised lenders designed by other students who’ve had their fingers burned by unscrupulous pay-day lenders. They’ll be able to help you out, even if you’ve got a bad credit rating. Once you’ve paid them back, you’ll find that your credit rating begins to recover.