Leaving university marks the beginning of a new chapter filled with exciting opportunities and often dreaded responsibilities. One of the most important is money management, which involves factors such as budgeting and building a good credit score. A healthy credit score is vital for your chances of securing loans such as mortgages later in life. Here’s a guide to help build yours after university.
Understand the basics of credit
First, it’s important to understand what credit and credit scores are. Credit is money that you’ve borrowed, whether that’s spending on a credit card, committing to a phone contract or taking out a personal loan.
Your credit score is a figure that represents your history of borrowing money. Lenders use it to evaluate how risky it might be to lend you more. The higher your score, the lower risk your level of risk.
Factors such as your payment history, the amounts owed, length of credit history, applications for new credit and the types of credit you have all play a part in creating your score.
Get a starter credit card
One of the simplest ways to start building your credit score is by obtaining a starter credit card. These are specifically designed for individuals with no or little credit history. Many banks and financial institutions offer cards with relatively low interest rates and no annual fees to help get you started.
Be sure to use these cards wisely and pay them off in full each month. This not only helps to build your credit history but also demonstrates to lenders that you are a responsible borrower.
Pay bills on time
Consistently paying your bills on time is another thing you should do to protect and improve your credit score. This includes paying off your credit card, phone bills, utility bills and any other recurring payments.
Direct debits are a useful tool to ensure you never miss a payment. Missed or late payments can stay on your credit report for as long as six years.
Keep your credit balances low
While it is beneficial to borrow and repay credit to build your score, doing so irresponsibly can be harmful. High outstanding debt can suggest you are overly dependent on credit, bringing down your score.
A good rule of thumb is to keep your credit utilisation below 30% of your total limit. For example, if your credit card has a limit of £1,000, try to maintain a balance that is less than £300 at any one time.
