Don’t worry! You are not the first (and definitely not the last) person that is struggling to get to grips with student credit scores. Like most students you are probably just starting to become financially literate. Finding what is useful among the financial jargon can be difficult. One thing to know is that credit score is really important. Especially when you want to start looking for a home or business loan. We crawled the internet to find the most common questions students have on credit scores, so let’s get started!
What is a student credit score?
First thing first, a student credit score is the same as a regular credit score. A credit score is a numerical value assigned to an individual that assesses how good they are with money. This number is based on available information about the individual from their credit report.
This means that credit bureaus and banks will look at the way you spend (or save) money according to your financial history. Based on this information they assign you a three digit number, the higher the number, the better your credit score.
Why does it matter if I have a good credit score as a student?
Credit scores will often affect the loan offer you are given by a bank or lending company. For instance if you want to have a student bank account, your credit score will determine if the bank will allow you to take out the maximum interest free overdraft. Your credit score can also affect the amount a lending company is willing to loan you and what your limits are in a student credit card.
Your credit score is like an address for your financial spending history. You will always have one and banks will always check it before issuing any offers.
Which sounds sort of scary.
But it’s not. Credit scores also improve for good financial responsibility and as a student you have loads of opportunity to improve your credit.
Does a student overdraft affect credit score
For the most part an overdraft will not affect your credit score. An overdraft is part of your current account which credit bureaus have little interest in. They are much more interested in your credit history and how you behave with borrowed money.
In saying that there are some indirect ways a student overdraft could affect your credit score.
Multiple overdrafts are a red flag for credit bureaus. If you have more than one bank account, with more than one overdraft, then your credit score will probably be affected. The rationale is pretty simple, multiple overdrawn accounts means irresponsible spending. If you are in this situation you need to work to get your balance to at least £0 and close all accounts except your primary one.
Ignoring contact efforts:
As a student you will most likely have 0% interest rate and banks will generally not look for repayment until after you graduate. Which is fine. Just make sure not to leave it unpaid for too long. Lenders will employ a collection agency if they are unable to reach you to work out a payment plan. As soon as a collection agency is involved your credit score will be affected.
Some banks have their own internal credit scoring system. If you are constantly overdrawn they may restrict your future lending opportunities internally. This will not restrict you from seeking other lines of credit with other lending companies.
Although overdrafts are a useful indicator, they are not the primary means of assessment.
In general credit bureaus focus on credit card repayments, bills and more substantial loans.
Does a student loan affect credit score?
No. Your government student loan will absolutely not affect your credit score and there will be no recording of this type of loan on your credit report. When applying for credit you can be asked if you have a government student loan but this will only be used to when creating a payment plan as lenders will be aware that part of your salary will be going to it’s repayment.
If you availed of a student loan between 1990 and 1997 then a late repayment will show up on your credit record. The student loans company will send a letter with a 28 day warning if you are a late payer before submitting it to the credit record.
If you are one of these few people and are struggling with making payment try contacting your institution.
What is a good credit score for a student?
It depends on the credit model being used and how much risk the lender is willing to take. There are plenty of different credit models but one of the most common is FICO which ranges from 300-850.
Good and bad credit scores are dependent on the perspective of the lending company. Some companies will accept lower credit scores where others may not. It is all dependent on their goal. At Future Finance we understand that students have typically not had the lifespan to build a perfect credit score. That’s why our lending criteria uses other factors such as university and course employability.
The problem is that it is pretty tough to give an accurate number for what is a good credit score for a college student. Especially in the UK, where most students primary means of debt is a government student loan – which has no effect on a credit rating.
If you are a student the best thing to do is work at improving your credit score. Make sure to keep up with your agreed payments on all forms on debt such as; credit card, private student loans and overdrafts. Also make sure to pay any bills, you can find more tips in the improve your credit score section of this article.
Are student loans good for credit score?
There are two kinds of student loans; government student loans from the Student Loan Company (SLC) and private student loans from companies like Future Finance (that’s us!)
Most students at third level education take out a government student loan when entering university. This is something that we highly recommend if you need extra cash. The SLC offers students the best rates on the market and it should be every students first port of call when looking for financing.
Your government student loan will not help your credit score. This is because it does not show up on your credit record. Banks will only be able to discover your student loan details if you tell them. Which they will often do after you graduate from university.
When you take out a private student loan there is the possibility that your credit score will improve or decrease. As long as you meet the agreed payments your student credit score will improve. Always make sure to only take out what you need and be frugal with spending.
How do you find your student credit score for free?
Each offer a 30 day free trial with regular reports and unlimited access. You can always use the 30 day free trial and cancel your subscription after that date (otherwise it would be £15 per month). You should also know that you have a legal right to obtain your credit report for a cost of £2 should you need it for a loan application.
You could also avail of a range of free tools online designed to estimate your credit score based on information you provide. The most common of these is a credit score calculator, although not specifically designed for students you should be able to get a good estimate.
How to improve your student credit score:
Make sure details are correct
Credit scores are fallible and shouldn’t be treated as gospel. Make sure to check through your credit history to see if there is anything that looks strange. Credit bureaus have been known to make mistakes and this can unfairly affect your credit score. Always be diligent with anything regarding credit.
Landlord Rental scheme
Most people will prioritise paying rent. This monthly repetitive payment is a great indicator of fiscal responsibility. But even though tenants have been extremely diligent with these payments there has been no obvious benefit to credit score. Well now that has changed.
Using a third party application called Credit Ladder you can improve your credit score at no additional cost. All you have to do is pay your rent through credit ladder and have your landlords consent to do so. Easy.
Use a credit card wisely
It’s no secret that credit cards require a good level of responsibility. Although we don’t know for sure how credit ratings are formulated we do know that credit card repayment is a key factor. If you have a credit card and you make all required repayments you will see your credit rating improve significantly.
Avoid late payments
Avoid late payments on everything that you can. Another primary factor for credit bureaus is simple things such as phone and utility bills. Keep up the monthly repayments and your credit score will thank you.
It’s never been easier to check and compare rates online. But you should be aware that rate checking can seriously affect your credit score. Some lenders do a “hard check” which is noted on your credit report and can cause a reduction in credit score. At Future Finance we do something called a “soft check” which does not show up on your credit score.
If you are rate shopping the best thing to do is keep to the same type of loan with the same amount over a two week period. That way the credit bureaus can clearly see that you are shopping and not financially vulnerable.
Student credit scores are complicated, but we hope this guide has helped. If you think we missed anything be sure to leave a comment and we’ll add it to the post!
If you have any questions about Future Finance student loans, you can visit our FAQ page or call us on 020 3743 8700