People often think that our credit score is irrelevant at our young ages but realistically you could begin to build when you’re as young as a child by being educated on the matter. There’s evidence to suggest that educating kids about money will pay off in higher credit scores later.
This topic first came to my attention when I started university and I wanted to open a new bank account with Santander, but I was rejected because my credit score wasn’t high enough. At the time, I had no clue what my score had to do with opening a bank account but then after I had done my research, I realised I didn’t have enough credit history to be trusted to open a new account. This could be the case for some people where you haven’t made any financial mistakes you just haven’t done anything to build a credit report for yourself.
Your credit score determines how much of a risk you are to loan money too. The lower your score the higher risk you are to lend money too, whereas the higher your score the less risk there is to lend money to you. Credit comes in the form of many things such as: phone contracts, mortgages, car finance and loans. Which I don’t think many people are aware of, a common mistake is people associate credit with just mortgages and property related things.
There are plenty of ways to start increasing your credit. The simplest is to register to your local electoral roll. This allows lenders to know your location if you ever decide to move to a new house. So, make sure you always update your address on the electoral roll any time you move!
Any opportunity where you can pay a whole payment as a direct debit you should take it. This shows lenders you can pay money on time, this consistency over a long period of time will really boost your score. However, you should always make sure to have money in your bank account to pay this on the exact date required; the last time I accidentally missed a payment my score dropped dramatically. Examples of direct debits can be phone and gym contracts.
Being in debt for a long period of time or increasing that amount of debt without paying it off also takes a big hit on your score. There’s nothing wrong with borrowing money and being in debt. However, I would highly recommend you not borrowing money if you’re not sure of how or when you are going to be able to pay this money back.
This ties together perfectly with getting a credit card. Having a credit card allows you to make payments with money you don’t have as long as you pay off all the money you’ve spent on the credit card at the end of the month. This is a great credit booster as it shows you can once again pay money back on time. However, one major thing you should not do is apply for many credit cards, as this shows lenders you are desperate for credit which once again can have a negative impact on your score. Two credit cards I would personally advise for credit building purpose are Aqua reward or 118
money, but of course do your own research and see which best suits you!
An important factor that I’ve just recently learned is “Credit Utilisation” each credit card has a limit that you can spend, for example £1,000 on one card, let us say you spend £250 on that card, your credit utilisation is now 25% which is good, it is important to have a low credit utilisation to show you are not reliant on credit. This also goes for you having multiple cards, the credit limit will be totalled for all the cards and the credit utilisation percentage will work in the exact same way. I’d advise to keep it under that 20-25% bracket.
Your score will not jump up overnight, it takes a while to start seeing results so I would say keep being consistent and patient and eventually you’ll begin to see it rise gradually. If you want to check your score, I would advise looking at it through all 3 credit agencies (Experian, Equifax and Transunion). Some useful apps I use are Experian, ClearScore and TotallyMoney.
Any questions you have on this topic feel free to ask the Real Talk team!
The RealTalk Team
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