Do you know how you manage your finances now affects your credit history later?
Being a student is exciting and exhausting at the same time. You are now responsible for every expense, so managing rent, utilities, and educational needs becomes challenging. For the first time, you may have a bank account with the facility of an overdraft. You may be exploring the best credit cards to feel financial independence.
Every small financial initiative from your side decides your credit score. If you behave responsibly, you may witness a healthy one later. It may help you get potential deals on – car loans, home loans, mortgages and even credit cards.
So, it’s time to lead the finances and build your credit score.
What’s a credit score exactly? Why do I need one?
If such questions make you curious, the blog is for you. It is a guide to building your credit score from scratch. New students unfamiliar with the concept may find this useful.
What is a credit score, in simple terms?
A credit score is a 3-digit number that popular credit agencies provide individuals. The authorities analyse aspects like- income, credits, overdrafts, and pending payments. Accordingly, they provide a score. There can be multiple credit scores. It may vary according to the credit agency you consider. However, the score doesn’t differ much.
A credit score helps you understand the borrowing potential. It grants insight into how much you can borrow given the finances. Individuals with poor credit scores face difficulty in getting favourable credit cards or car loans. Alternatively, a high credit score fetches the best credit cards and loans. They may even get one with low interest rates.
Why do you need a credit score?
Every student needs to have a credit score for multiple reasons. The most important one is- building credit history. It is a comprehensive list of outgoings and incomings. Individuals with better payment habits develop the best credit rating. A credit score may help you with the following:
1) Get a low-priced mobile subscription
Mobile recharge is a critical part of the student’s life. Having a valid bank account and transaction history helps. You may get affordable mobile phone services. Sometimes, your credit score may also help you get favourable cable and internet connections.
However, initially, it will be hard to find cheap fare. If you struggle to pay your mobile bill, don’t worry. Certain finance facilities may help you.
For example- check student loans in the Ireland marketplace. It is an exclusive option for new university students. Undergraduates with basic part-time income may qualify. One can use the facility to counter urgent or small monetary needs. It is okay to be out of cash sometimes. Thus, check it and finance the need the same day.
2) Find an affordable place to rent
Indeed, a good credit score may assist you find cheap rent. It gives you the power to convey the landlord. Landlords may agree to reduce the rent a little.
For example- if the average monthly rent costs €14000, a good credit score may help you get one at €12000. What could be better than saving money?
3) Grab low-interest car loans
If you are 19, you may want to drive your dream car. Every student aspires to buy a car quickly. However, limited credit history proves the greatest obstacle. You may not get one without a credit history. You may need a guarantor with a verified driving profile to qualify.
How do I create and build my credit rating as a student?
Knowing the right route is important if you are just starting your financial journey. Most students seek shortcuts. However, it does not work when it’s about building credit history. It takes around 3-6 months to build your credit history. You need to involve a mix of credits to form a healthy one. Here is the step-wise process that may help:
- Step 1- Open a valid bank account
It is the basic step to start your financial journey. You should have a personal account for expenses. You no longer depend on guardians for help. Thus, opening a bank account is a baby step towards constructing a positive credit history. Use it to pay basic payments like- utility bills, credit card dues, rent, etc. Compare the interest rates and prefer the one with the highest one. It is ideal if considering a current account.
- Step 2- Register to Vote
Joining your country’s electoral roll is important. It brings the right to vote as a citizen to you. It also proves your identity as a permanent citizen. It helps the creditors confirm your identity. Thus, it is an important credit parameter. Students share the privilege to update their residential addresses often. The Authority knows that students don’t own the home. Thus, students may register twice.
According to Experian stats, “Adding electoral roll to your credit score increases your score by 50 points.” However, the credit jump depends on individual circumstances.
- Step 3- List all bills in your name
You cannot pay the bill unless you rightly own the right to do so. Thus, identify the bills you share or split between your guardian and yourself. Take the charge and repay it in your name. Rename bills like- telephone bills, rent, gas and fuel, electricity, etc. Consistent and timely payments reveal you as a responsible citizen.
- Step 4 – Ensure a great credit mix
Credit mix is a variety of the available credits in the report. Having a comprehensive profile helps with credit scores. For example- your profile may reveal debts like- credit cards, payday loans, car loans, overdrafts, etc. It showcases the variety of handling multiple credits. Thus, it helps build credit history and is important for future perspective.
For example- your credit profile might look like:
| Credits | Amount (In Euro) |
| Payday loans | 1000 |
| Car loan | 15000 |
| Credit cards | 5000 |
| overdrafts | 400 |
- Step 5 – Set direct debits for payments
A direct debit is a continuous payment Authority that helps you pay the bill automatically. However, your bank account should have that facility. Most loan providers or credit card companies provide discounted deals to such profiles. You may get a 5% discount on credit cards or pay low interest. Moreover, paying through direct debits builds credit score. You don’t skip a payment.
For example- if you avoid a credit card payment, you may be liable to pay €12 extra. It is the average penalty cost. If your total credit card bill is €1300, you pay €1312 instead.
However, your related bank account must hold the required money. Most individuals live from paycheck to paycheck. Don’t worry. You don’t need to delay the payment.
Check the best no guarantor loans for your needs. These are small cash facilities for individuals seeking independent finance solutions. Earning students may leverage it to settle the bill. These loans may help meet the payments with building credit. Borrow only what you can repay comfortably.
- Step 6- Ensure conscious spending
Updating financial details like- name, email address, residential address, and contact number helps. It keeps your credit healthy. However, it is not the least you can do. Regulate your spending well. Develop a budget for useful expenses.
For example, if you earn €15000, split it by prioritising needs first:
- Rent- €7000
- Utility bills- €500
- Credit card bills- €1000
- Transportation- €200
These expenses add up to €8700. You can still save €6300. However, other miscellaneous expenses may curb €2500. You can still save €3800. Ensure sufficient savings to keep credit healthy. Utilise the available credit limit well. Don’t exceed it unnecessarily.
Students may struggle to budget initially. This happens because of a lack of saving habits. Begin by saving just €100/week. Check the expenses you can cut. It will help you save better. For example- delay the most anticipated gadget to meet your saving goal for a car deposit.
Bottom line
These are some of the best steps to build your credit score when you are an education seeker. It could seem challenging initially. However, you can improve one with personal research and experimentation. Reduce reliance on credit cards. It affects the credit score. Instead, save some cash just for emergencies. Next, cut additional expenses and optimise your credit profile.
