If you’re a student or have attended university in the past, you’ll know how expensive it can be to live away from home, paying for everything yourself for the first time. This is where loans can come in handy, whether that’s student finance to cover the cost of your degree, a maintenance loan to cover living expenses, or overdrafts and credit cards that can be necessary for an emergency. You might be wondering how this debt will affect your credit score, and if it means you won’t be approved for funds in the future, like short term loans or a mortgage. Read on to find out more!
What is a student loan?
If you apply to study at university, you will most likely take out a student loan. This is a loan that covers the cost of your university education each year and can go towards living costs if you plan on moving away from home. The tuition fee goes straight to your university and is paid for by the government, your maintenance loan is paid to you to cover living costs. The money you will be offered as a maintenance loan comes down to your household’s income, and both must be paid back when you graduate from university or college and begin earning over a minimum salary.
Student loans and credit score
When you go to university, it is important to apply for finance so that you can pay for your course and afford to live independently. Even though this finance option is a loan, it doesn’t affect your credit score and won’t be shown on your credit report. The only way that a lender will know if you’re paying off student debt is if they specifically ask you, but it shouldn’t affect your ability to apply and be approved for loans in the future.
Overdrafts
Your student finance loan may not appear on your credit report, but there are other types of student debt that may harm your credit score and therefore your chance of being approved for loans in the future.
For example, if you’ve found yourself in your student overdraft. If you use this wisely and pay back the amount you’ve gone into your overdraft in the required timeframe, this won’t have a negative impact on your credit score, however, if you frequently go into your overdraft and exceed your limit more than once, this will be detrimental to your credit score. Lenders need to be able to trust that you can pay back the money that you owe – dipping into your overdraft and spending over the limit you’ve set, shows them that you may be struggling to manage your finances.
Credit cards
Another example of debt that may impact your score is credit card bills. Using a credit card is a great way of building up your credit score if you can meet the repayments on time, and you’re using it responsibly. Sometimes, when you’re a student and money is tight, turning to a credit card in an emergency or to pay an unexpected expense is necessary, however, you should make sure that you’re not reliant on them as you may end up building up debt if you can’t pay the monthly bill, which will have a negative effect on your credit score.
How to improve credit score
There are ways to improve your credit score as a student, easily and effectively. One of the simplest ways to build up your credit score is to pay your bills on time – if you’re worried that you’re going to forget, set up direct debits so that money will be paid from your account without you having to think about it.
Soft searches
If you’re applying for credit and would like to view rates before you do so, make sure you use sites that conduct soft searches. These searches don’t appear on your credit file. Hard searches, however, will show up, and if you apply for a lot of loans at once, your application is more likely to be declined, as lenders will be able to see on your credit history that you’re applying to a lot of different places for credit, and they may think you’re desperate for funds or unable to manage your money.
Check your report
Checking your details can also be advantageous when it comes to improving your credit score. You can check your credit report to make sure everything is correct, and you can even query any issues that you don’t think sound right. Checking your credit report won’t affect your score, but it could allow you to make a positive change if you find something is incorrect.
