Ah, the first financial expenses of your first independent living situation. Split bills with your new roommates, deciding on a decent broadband package, contributing to buy the vacuum cleaner. Is there anything sweeter than the first glimmer of responsible adulthood?
Then the administrator put you down. Your reprobate roommate spends his entire student loan on a PS5. Your buddy dips into the Monzo housing tax pot to top up his Coke habit. The cost of water bills you didn’t know was one thing. And while these circumstances can be a huge source of stress in the short term, they could also have an impact on your long-term credit rating.
According to a 2021 Study by Compare The Market, almost half of 16-24 year olds don’t fully understand what credit scores really do. VICE spoke to experts to find out if your credit score really matters, what you can do to improve it, and whether or not your financially useless roommate has shit on your future.
What is a credit score, anyway?
“A credit score is basically a number that reflects how good you are with credit,” says Jayna Mistry, senior PR and communications manager at ClearScore, the first company to launch a credit check app in the UK. -United.
“What’s really important is actually all the information on your report. Say you have a credit card with Lloyds: when you use your credit card, they will report to credit reference agencies how much you’ve used, if you’ve paid it back or if you’ve missed any payments. »
Basically, it’s the information that future lenders like banks will look at to decide if you’re a trustworthy person or a total liability.
What if I have a bad credit score?
“We have this tendency to say ‘good’ and ‘bad’, but we’re actually talking about up and down,” says Mistry. “Someone 18 is new to credit, and they may have what would generally be considered a ‘bad’ score, but that’s only because they haven’t used credit before..”
Whatever reason you have a low score, she continues, “it could prevent other lenders from seeing you as a credible borrower, which would affect your chances of getting a good mortgage rate or decent financing options. in the future”.
It’s easy to think “anyway, I’m years away from buying my own home,” but your credit score doesn’t just influence your future mortgage. Say you need to cover an unexpected expense, like packing your boiler, or you want to borrow money to buy a car. Having a low score could limit your ability to get a loan or a credit card. Want the new iPhone on contract? Companies can refuse you if you have a bad credit score. In short, it’s not just about being able to buy a house in the near future.
How can I check my credit rating?
“A lot of people may not know they have a credit score to begin with,” says Sho Sugihara, co-founder and CEO of credit company Portify. “One thing to know is that your credit report is a legal right and you have access to it, free of charge, regardless of anything people are trying to sell.
The Americans have a regulator called FICO, but we have three main credit bureaus here in the UK: TransUnion, Experian and Equifax. You can check your credit score for free at Credit Karma for TransUnion, ExperianExpert for Experian, Clearscore for Equifax.
“In terms of utility, there’s not much difference,” says Sugihara. “There are a few instances where a mortgage lender may not look at your Experian credit score, but [another] could look at your TransUnion score, or another credit reporting team could look at all three – but they all basically do the same thing.
Can something or someone else affect my credit rating?
“Credit checks these days are about the person — about you — not about the people you live with, even though that used to be the case,” says James Jones, head of consumer affairs at Experian.
But, he warns, “Someone else’s information can come into the equation if you’ve linked credit with them. Suppose you opened a joint bank account with people you live with, to help pay bills. If this bank account is overdrawn due to the actions of one of the account holders, this will obviously reflect badly on you.
More importantly, says Jones, “having this account attached will also save a link on your credit report, so if you apply for credit in the future solely on your behalf, the lender can view other people’s credit reports as well. If they have continued to have serious financial problems, this will also reflect badly on you.
What if you are the responsible roommate in charge of paying the electricity bills for your apartment on your own account? Your utility company may also report any missing payments to credit reference agencies, which will in turn affect your own credit score.
What can I do about this?
Along with making sure your irresponsible housemates are contributing to bills on time, Jones says “one of the things we say to do when you check your report is look at the section we call ‘financial associations’.”
“It’s basically a list of everyone you’ve bonded with in the past,” he explains. “This may include roommates if you have joint products, but more often than not it will be ex-partners or partners.”
The way to fix this is to “contact the major credit reference agencies – Experian, Equifax and TransUnion – by going to their websites, contact section and requesting what we call a ‘financial unbundling’.”
“You just need to provide the other person’s name and address and say you’re no longer related. Assuming we have no proof of an active account in both of your names, we will break the link and it’s normally as simple as that.”
So how do I establish my credit rating?
All respondents recommend registering to vote, as this will also get you on the voter rolls, showing lenders that you have a fixed address and are therefore trustworthy. (And don’t forget to exercise that vote once you have it.)
Services like ExperianBoost Where Portifywhich Sugihara co-founded, send positive data to the credit bureaus — phone bills, direct debits, or any other information they might have overlooked — to improve your score.
Jones says taking out a credit card and paying it off each month can be beneficial, but cautions that you need to “make sure you think it through carefully and make sure you have a plan to pay it off.”
It’s easy to get intimidated by all of this, especially if your score isn’t exactly great, but information about missed payments, bankruptcy, or county court judgments (where you must go to court for your debt) are erased after six years. And next time, screen your housemates a little better — or at the very least avoid setting up a joint bank account with them.