The Credit Score of Fate

Helen Lawless

The concept of a credit rating, some arbitrary number decided by some strange algorithm, having sway over your financial fate – it’s rather alarming, isn’t it?

Well, I’ve got news for you – young people need to be on the ball when it comes to their credit rating, especially in the post-crisis era when lenders are going to new lengths to appear responsible. Don’t worry though – armed, with a little information, it doesn’t have to be so ominous.

So what is a credit rating anyway? Why does it matter? At some point in your twenties, you’re going to need to borrow money, and your credit rating is a measure used by lenders to decide whether you’re a sound investment. In other words, they want to know how likely it is that you’ll repay your debts – and your credit rating helps them to weigh up the chances.

Credit ratings combine information about you, your employment or future prospects thereof, what you submit in your application and most pertinently your credit history (when you’ve taken out money before, and if/when you paid it back) to indicated your credit worthiness in a single figure. The higher, the better.

At one time, credit ratings were only relevant to large loans, like mortgages, but now they are taken into consideration when banks give out private student loans, by home and car insurance companies when they offer policies, by landlords when they decide how much rent to charge, and even by mobile phone networks when they decide whether to offer you a contract. That means a credit rating has the potential to significantly affect a young person’s financial – one might even say their personal – well-being. Here are a few ways to build up a sound credit rating:

  1. Don’t apply for multiple loans simultaneously if you can help it. Space your applications out as much as possible – otherwise, this can raise a red flag. On a similar note, close any bank accounts you don’t use, as this can also trouble lenders.
  2. You want to appear steady and reliable. For example, lenders like a long employment history so mention all your previous paid jobs. A stable locale is also beneficial, which is why lenders tend to prefer people who own rather than rent their homes. So put down a landline phone number if you have one (you can usually get a landline pretty cheaply in a bundle with your home internet). Having been with the same bank for a while will also make you seem like you’re likely to stick around. Remember to double check your loan applications for errors; re-read the thing until you’re sick of it!
  3. Don’t just pay back your bills in full, but be as timely as possible. Find a way to remind yourself in advance when your payments are due.

Essentially credit can either be a virtuous or vicious cycle: if you pay back your bills in plenty of time and err on the side of caution, rather than extravagance, lenders will offer you a better deal next time. When you’re young, you haven’t had many opportunities to prove your reliability, but if you manage your credit prudently over time, you will seem less high-risk. Here are a few tips to keep your credit sheet looking clean:

  1. Make sure there are no mistakes in your credit report. Make sure all your contact details, employment history and credit history are accurate. Similarly, make sure you also keep all your information with your bank, local council, national insurance and the electoral roll up to date.
  2. Be careful about entering into loans with other people: if you’re seen to be “financially associated” with someone else, their credit score is your credit score, and they may not have been as thoughtful as you have.
  3. If you need to build your score quickly for a larger loan, consider a pre-paid credit-builder card: after 12 months or so of successful repayments on a hiked interest rate, your credit score will have dramatically improved.

So control your credit score – don’t let it control you!


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