Building Credit as a Student💰

Financial education for young people 👨‍🎓👩‍🎓

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Good credit is key when applying for a loan to buy a car, a house, start a business, and more! Learn how you can set yourself up for future success with a few simple steps.

What's happening?

Credit is a financial topic that is essential to both multi-billion dollar corporations and individuals such as yourself and is likely to be something that will come up often throughout your financial future 📈. Credit is the money that one person lends another over a certain period of time. You will likely find yourself in a situation where you want to purchase something but you either don’t have the means to or would prefer not to pay for it up front. When considering asking for credit, and hence taking on debt, the first thing you should do is consider whether you are taking on good debt or bad debt 🤔. The article 💭This or That: ‘Good’ Debt vs ‘Bad’ Debt will help you understand how to decide if taking on debt is a good idea.

Once you have decided that it is beneficial for you to take out a loan, you will need to apply for the loan ✒️. This includes proving to the lender that you are reliable and can be counted on to pay the money you borrow back in the future. This level of reliability is referred to as ‘creditworthiness’ and can be quantified using a credit score 💯. Lenders will check your credit score when deciding whether or not they would like to lend money to you. But what’s also important is that based on that number, lenders will often also decide how much interest or APR (annual percentage rate, typically used for describing interest on credit card debt) 💲they will charge you; a lower score means it will be more expensive for you to borrow money.

Why it Matters

Since a credit rating is so important to being able to borrow affordably in the future, it is wise to do your best to achieve a good score. Credit scores consider everything from how long you have been using credit 🕒, to any missed payments you have had ❌, whether you are near your credit limits 🌡️, if you make regular payments 🔔, if you are registered to vote 🗳️, and more. You may have multiple different credit scores because different credit reference agencies and lenders may use their own formula and the information they have about you to calculate your score. However, they all consider the same factors, so no matter who is looking, you should be aiming to prove you are a reliable borrower.

Since it takes time to prove to lenders that you are creditworthy, it is important that you start using credit early, for example, while you are in university 🎓. This can also be helpful because lenders like to see accounts that you have had open for several years, proving that you have managed them responsibly. There are two financial tools in particular that can help you start building a credit history, and that includes a current account with an ‘arranged’ overdraft and applying for a credit builder credit card (when you turn 18) 💳. Both of these tools will allow you to prove to lenders that you can be relied on to pay back everything you have bought using credit, and they also allow you to set up regular recurrent bill payments by setting up direct debits to build a case for your reliability.

However, it is important to be careful when using credit or your overdraft. You should avoid, whenever possible, taking on debt when you don’t have the money or guarantee that you will earn the money needed to pay off that debt in time 🚫. You may also consider starting with just one credit card to get comfortable with using credit and because setting up too many new accounts or applying for credit too often can hurt your credit score. To avoid creating multiple accounts, be sure to do your research 🧑‍💻 when choosing a credit card so you end up with one that will work for your needs.

Key Takeaways for You

1. 💳 Having Good Credit is Important

A good credit score is important to helping you secure loans and a better rate when borrowing. Lenders make these decisions based off your credit score so it can help you save money and enjoy more financial freedom with a better score.

2. 💯 Your Credit Score is Your Level of Reliability

Your credit score can be built up by having many opportunities across several years to prove to lenders that you can be counted on to pay back any debt you have taken out.

3. 🧰 Use Financial Tools Early and Wisely

Using financial tools such as a current account with arranged overdraft and a credit card starting when you're young can help you build up your credit score, as long as you are sure to borrow responsibly and make payments on time.

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