Students and credit reports
Student life can be financially challenging. You’re likely to have to pay tuition fees, and not every student can count on family support or receiving a grant. Student jobs can bring in extra income, but they might not pay enough to cover all expenses, especially when unforeseen circumstances like home repairs suddenly burn a hole in the budget. A student loan might be the only way of having enough money to pay for tuition and everyday expenses. Read on to find out more about student finance, myths about student loans and why it may be useful for you to pay attention to your spending while still in university.
Graduation and credit reports
Overspending and other forms of debt you acquire while still being in university can affect your ability to obtain credit after graduation. It helps to think about a credit report as your financial CV that illustrates your financial behaviour in the past. Depending on circumstances and lifestyle, your student loan might not always cover all expenses and chances are that you may have to find a way to pay all your bills on a limited budget. This can result in maxed out credit cards, overuse of overdrafts or missed bill payments, which then can show up negatively on your credit report. Once the information is on there, it can stay in your financial history for up to six years.
The cost of studying
When budgeting for university there are a few things you should consider: tuition fees, books, accommodation and food are just some of them. With the cost of tuition reaching beyond £9,000 per year at some universities, many students have to take out a loan. This may be a cause for concern.
Many young people see the loan as a large amount of debt looming over their heads the entire time they’re studying. It might even keep students away from university entirely, as the sum owed after graduation may seem high. However, the amount that you’ll need to pay back after graduation is not a simple number that has to be paid back immediately and in one payment, but one that needs to be looked at over time and in detail. This is why it is important to know the important details about student finance and how to get through university without accumulating unnecessary debt that adds to the student loan.
Types of student loans
There are different lenders on the market offering different types of loans. One distinction is made between the tuition fee loan, which pays for admission and tuition, and the maintenance loan, which is intended to cover the cost of living. The lender pays the tuition fee loan directly to the university to cover admission costs and charges, tuition fees and other items, while the maintenance loan is paid directly into your student account.
The amount of money provided by a lender for a tuition fee loan or a maintenance loan can vary. Tuition fee loans can depend on factors such as location of the university and what limits the university sets in its tuition fee policy. A maintenance loan can depend on your age and your parent’s income, your partner’s income if you live together, or on any personal income earned before enrolment at university.
Myths about student loans
Student loans are a complex topic, and there are many myths out there you need to know about repayments and obligations. From a long-term financial point of view, student loan repayments do not directly affect your credit score. This is because they won’t show up in your credit report as they’re deducted from your future income automatically with a fixed percentage after graduation. Also, you only start paying it back when you earn more than £21,000 a year.
However, debt accrued in other ways will show up on your credit report, for example, debt obtained through overspending on credit cards or by not paying bills on time. Websites like The Money Advice Service and MoneySavingExpert.com offer detailed advice on student loans and student finance, how and when to make repayments and what the law says.
Budgeting and credit hygiene
This is why it’s important to keep track of your student spending and to be able to separate fact from fiction when it comes to your credit report and score. Missed payments and overspending are just two things that can negatively impact your credit report. To help improve your chances of obtaining credit after graduation, it is crucial to keep good credit hygiene. It’s also important to be aware of the factors that can affect your credit report, and to start being mindful about personal spending as early as possible.
Always having your credit information close to hand can help you to keep track of your personal finance. Equifax Credit Report & Score offers unlimited access to this, in addition to alerts about key changes, identity protection tools and more. It’s free for the first 30 days, then only £7.95 monthly.