Student credit scoring

10 key need-to-knows, including student loans and your credit file

For many students, going to university is a time of increased financial independence. That often goes hand-in-hand with increased borrowing, whether via a student loan, overdraft, or credit card. While not necessarily a bad thing, it's vital to know how this impacts your credit score, and what you can do now for a healthier financial future post-uni. Here are our 10 key need-to-knows.

This is the first incarnation of this guide. If you've feedback, please let us know in the student credit scoring forum thread.

  1. Student loans DON'T go on your credit file...

    A credit rating shows how likely a typical lender would be to offer you credit. That could be for a credit card, loan, or mortgage, as well as things like mobile phone contracts and bank accounts.

    To work out whether to lend to you, lenders look at lots of different data. This may include how many applications you've made recently, how much you owe, what credit products you've had and whether you paid them all off on time. Some of this comes from their own data, but they'll often also consult one of three reference agencies – Experian, Equifax, or TransUnion – each of which holds a credit report on you.

    But while your report (also called a credit file) contains quite a lot of information about you, it generally WON'T include information on your student loan.

    So, when they look at your credit file, lenders won't be able to tell if you have a student loan – regardless of whether you borrowed £1,000 or £100,000 – or factor this into any decision about whether to lend to you.

    That hasn't always been the case, though, and there are a couple of possible exceptions, depending on when you went to uni...

    • Started uni pre-1998? Your loan used to impact your score but now doesn't

      If you started higher education between 1990 and 1997, you're on an old 'mortgage-style' loan. All these loans have now been sold to private companies but – once you're earning over the threshold – it's still YOUR responsibility to pay it to whichever company administers your loan. It doesn't happen automatically (unlike with newer student loans).

      Up until recently, if you were late or missed a repayment, this DID have an impact on your credit report. However, the big three credit reference agencies – Equifax, Experian and TransUnion – have all now told us that these loans no longer have ANY impact on credit reports.

      Even so, you should still make every effort to keep up with your repayments. If you don't, the Student Loans Company (SLC) will start recovery action and may pass the debt to collection agents.

      The SLC could also apply to recover the debt through the county court, in which case you could end up with a county court judgement (CCJ). If you fail to repay the full amount within a calendar month of the CCJ being issued, this will be recorded on your credit file.

    • Started uni post-1998? Your score isn't impacted (with one possible exception)

      Unlike pre-98 student loans, post-98 ones are income-contingent, meaning you only pay if you’re earning above a certain amount. So, if you're employed and earning over the threshold, your repayments get taken automatically – there's no chance of missing a payment, so it can't impact your credit report.

      The only possible exception is if you're self-employed. If you are, you’ll need to complete the student repayment section of your Self Assessment tax return. If you do not give correct or complete information, you may have to pay penalties to HMRC.

      The SLC will also try to get in touch with you. Ignore that, and it will send debt collectors your way, and you could eventually end up in court and be issued with a county court judgement (CCJ). If you don't then repay what the CCJ says you owe within one calendar month, this will be recorded on your credit file.

  2. ...But they DO impact mortgage affordability checks

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    Unfortunately, just because your student loan doesn't appear on your credit file, doesn't mean it has no bearing on your future borrowing. As well as checking your creditworthiness, there's another big check that all lenders carry out when you apply for a mortgage. It's referred to as the 'affordability' test.

    This is essentially the lender calculating if it thinks you could afford the mortgage repayments – importantly, not just at the current rate, but also in the event interest rates were to rise (something that's known as 'stress-testing').

    In simple terms, when you apply for a mortgage, you're asked to declare any regular monthly expenses you incur – including your student loan repayments – and the lender uses this info to assess if you can afford the monthly repayments on your mortgage.

    As you have lower take-home income with a student loan, you'll be assessed as being able to make smaller repayments. Having said that, while a student loan is worse than not having one when it comes to applying for products such as mortgages, going to university often results in earning a higher salary, which can cancel this impact out.

    For full help, see Will a student loan impact your ability to get a mortgage?

  3. Struggling to understand credit scoring? It's about trying to predict future behaviour

    There are lots of myths about credit scoring, but at it's most basic, it's really very simple. It's lenders attempting to predict how you'll behave in future, based on how you've behaved in the past (as the video below illustrates).

    While a poor history counts against you, so does having little credit history as it makes predictions less certain. Students often fall into the latter category, which is why starting to build a credit history as a student is a good opportunity. Read more on how to build your credit history

  4. Your credit history impacts your creditworthiness but you DON'T have a uniform credit score or credit rating

    Don't fall for the misconceptions – in the UK, there's no one credit rating or score that is a market-wide judge of your creditworthiness.

    While individual credit reference agencies may give you a score, that is simply their view of your history, sometimes as a means to sell you that verdict as part of a subscription service.

    Yet the agencies just collect data that they share with lenders. It's lenders that make decisions whether to give you credit and each lender scores you differently and secretly, and their scores are far more important. 

  5. Using your ‘unarranged overdraft’ can wreak havoc with your creditworthiness

    Many students need an overdraft, which is where the bank lets you spend more than you've got (at no extra cost) up to a set amount. The limit the bank agrees is known as an 'arranged overdraft' – the amount it's happy for you to borrow.

    However, even if you reach that limit, certain banks won't stop you from spending, and you will instead then be borrowing from an 'unarranged overdraft'. You won't usually be charged for using this while you're a student, but it can wreak havoc on your credit rating – so the trick is to try and always stay within the limits if your arranged overdraft amount to avoid any negative impacts. 

    For more on overdrafts see Student bank accounts and Cut overdrafts costs

  6. Used responsibly, a credit card can boost your creditworthiness

    A credit card is simply another way of paying for things. But unlike using cash or a debit card, which reduces the money in your account each time you spend, the credit card company pays on your behalf then sends you a bill for whatever you've paid for on it each month.

    If you pay this off in full, you'll pay no interest (this is using the credit card responsibly, which should always be your goal). If you opt to pay a smaller amount, this is carried over to the next month and you'll be charged an amount of interest on the whole balance, until you repay it (unless you're on a special 0% deal).

    A well-managed credit card (staying within the credit limit and paying at least the minimum on time every month, though better to clear IN FULL) can improve your credit score as it evidences your ability to stick to an agreement and, ultimately, repay. As you're deemed less risky, this can lead to lower rates or greater chances of acceptance for other products, such as loans or mortgages. 

    For more, see How do credit cards work? and Credit cards for bad credit.

  7. Register to vote or it's much harder to get credit

    This is an easy win, as if you're not on the electoral roll, it's much harder to get accepted for credit. You don't need to wait for the annual reminder or for the elections to roll around, you can apply at any time on – you'll just need your national insurance number to hand.

    The electoral roll can be a factor in scoring, but even where it isn't, not being on it can lead to delays as lenders also use it to check your address and ID.

    If you're studying away from home and are either unsure which address to use, or are already registered at your home address, you can register at both addresses (provided they're not in the same election area). You'll then be able to vote in local elections at both locations (though you'll only be able to vote once in general elections).

  8. Don’t let your flatmate’s credit score ruin yours

    Being jointly named on a bill with a flatmate shouldn't mean you are 'financially linked' (this should only happen when the firm is confident you're a couple, such as when your bills are addressed to 'Mr and Mrs').

    However, if you decide to get a joint bill account with your flatmate(s), you WILL be financially linked. That means their files can be accessed and looked at as part of assessing whether to accept you. In other words, if your flatmate has a poor credit history, this could impact your perceived creditworthiness.

    So, while it might not be an easy conversation to have, it's often best to keep your finances rigidly separate, to help maintain access to good credit for you – hopefully they'll be understanding.

    If your finances are already linked and you've moved out of your flat-share, make sure you take the time to financially de-link and ask the credit reference agencies for a notice of disassociation.

  9. Paying your rent on time can boost your credit rating

    Sadly, paying £1,000 a month in rent while you're a student (or after you leave uni) doesn't help much to prove you can afford to spend £1,000 a month on a mortgage in future. Yet now, at least, there are free schemes that private renters can use to boost their credit ratings.

    It's worth noting that this is only worth considering if you always pay your rent on time. Miss a payment and it'll show up in your file and could be off-putting to lenders if/when you apply for a credit product. 

    There are three free options to choose from – one which your landlord has to sign up to and two that you can sign up to yourself. Our main Credit score guide has full info, but in brief:

    1. Rental Exchange Initiative – Your landlord needs to sign up to this service, but it's free for them and you. It works by recording your rental payments on your Experian credit file, so lenders who use Experian will be able to see if you paid your rent on time.

    2. Canopy – You can sign up to Canopy for free. It uses open banking to link the bank account from which you pay rent to your Experian credit file.

    3. Credit Ladder – Alternatively, you can use Credit Ladder, which reports your rent payments for free to either Experian, Equifax or TransUnion (you choose which one).
  10. Experian Boost may also give a limited, er, boost

    If you're struggling to build your credit history while at uni, Experian Boost* is worth a try – especially if you pay for services like Netflix or Spotify.

    It's a free add-on that uses open banking data to show lenders you're making on time repayments for these sorts of things - so just make sure the payments are on time to reap the (potential) rewards.

    While it's only used by a few lenders so far, and there's no guarantee using Boost will actually boost your score, Experian says it won't ever harm your credit score, so it's worth a try.

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