Good credit is key to a secure financial future. Your credit score shows how trustworthy and responsible you are when it comes to money, and has a big impact on which, if any, loans and financial packages you can take out. When you look to rent a home or buy a house, your credit score will be assessed also.
To help you make the right choices when it comes to managing your money, here are some top facts students need to know about credit.
Interest rates
The better your credit score, the lower the interest rates you can apply for when taking out loans, finance, and mortgages. Although 1% may not sound like much, when it comes to large sums, this deceitful amount could save you tens of thousands across a single year.
Having a good credit score also means you may be able to borrow more money, as lenders are more confident with your ability to repay them. This can be life changing when it comes to borrowing money for big investments, such as property and business opportunities.
Don’t miss your priority bills
Failing to pay or paying late on your council tax, mortgage, rent or utility bills has a lasting impact on your credit score. These are considered ‘priority bills’, and should always be paid on time. The impact of missing payments on these bills are far greater than those associated with missing finance repayments. Fines and court action are just some of the risks of missing priority bills.
A great way to keep a handle on your finances is to create a spreadsheet with all your income and expenses, to help you create a budget. With a birds eye view of your repayment plans, you can easily assess how much spare money you have each month.
Start to build good credit
Student loans begin to build your credit score once you start repaying them, and as they are typically a small, affordable percentage of your wages, they’re relatively easy to repay.
Taking out additional finance, such as credit cards and loans, also builds your credit – so long as you pay it back on time. Whilst it can be tempting to accept multiple credit card offers, be wary of stretching yourself too thin. A single credit card that is properly maintained is more than enough to help you build a solid score without the risk of missing repayments.
Some lenders offer specific credit cards for students, to help them begin to build credit without the usual requirement of a full time income.
Be aware of how finance works around the world
If you’re heading abroad during your studies, or looking to spend some time travelling afterwards, it’s important to know how credit works in other countries. Credit scores aren’t universal, they usually are restricted to their respective countries. So even if you build a good credit score at home, you may have to start again if you move abroad.
There are also different finance options available for students in the USA, and elsewhere in the world. It’s worth taking some time to research how your finances would look in various countries before you commit to a major move or study leave.
Take it slowly
When you start receiving payments from your student loan, it can be tempting to spend above your means, without considering the long-term impact this may have. But spending too much on the wrong things or missing payments when they’re due can affect your financial stability and credit score long after you graduate, so make sure you develop good habits now to set yourself up for a more prosperous financial future.