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Top credit-building tips for graduates

Get off to the right start in life with these credit building tips for graduates.
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Published on June 13th, 2022
Last reviewed on September 25th, 2023
8 mins read

Budgeting your money

With graduation celebrations coming to an end, it’s time for university graduates to start their life beyond school – and building a good credit score is an important part of it. Not only will a good credit score allow you to take out credit at better rates, but it will also allow you to meet your life’s milestones, such as being able to finance a new car or being accepted for the mortgage you want.

As you finish your studies, you may feel like you are not familiar with the credit score system, how it works, or how it could impact your future financial decisions. If this is the case, you are certainly not alone. A recent study revealed that 69% of Brits don’t know what their credit score is, and 65% of 18 to 24-year-olds in the UK have never checked their credit report.

So now that the next phase of your life is just beginning, it’s time to ensure you are properly prepared, financially. Aqua has put together a guide to help new graduates navigate through the complexity of credit building, so you can set yourself up for greater financial opportunities.

Why are credit scores important for graduates?

Representing your reliability at repaying borrowed money, your credit score could have a huge impact on your financial future by influencing the financial products you will have access to, such as credit cards, loans and mortgages, and the interest rates you are offered.

Credit scores are calculated using your borrowing history, including previous loans, overdrafts and any outstanding debts. And the good news for graduates in the UK is that your student loans do not appear on your credit report, and consequently do not affect your credit score. So, if you’ve managed to rely solely on your student loan, and no other loans, you won’t have any borrowing recorded on your credit report.

However, if you used a student credit card or overdraft, this would appear on your credit report. If they were not repaid on time, this will have a negative impact on your credit score, showing other potential lenders that you may not be good at managing your money.

But why is this important for graduates? If you’re planning to move out of your parents’ house or to get on the property ladder, a strong credit score will increase your chances of getting approved for a mortgage at a competitive rate. If you’re planning a future as an entrepreneur, you’ll have access to better terms and interest rates on loans. Or if you’re planning on taking a gap year and travelling, it’ll allow you access to a much wider range of credit card options with lower interest rates and international fees, helping you to take on the world.

How to start building credit history after you graduate

Now that we’ve established that a good credit score is important as you build your life post-graduation, how do you go about building one?

1. Register to vote

If you haven’t already done so, getting onto the electoral register is a simple and easy way to boost your credit score. Lenders will check the electoral register to make sure your name and address are correct, so this is a vital step in building good credit. You can register to vote online here.

If you’ve registered to vote in the past, make sure the electoral register is updated with your current address and doesn’t have your address listed as your old university accommodation, as this can impact how quickly lenders process your application.

2. Keep an eye on your overdraft

Many students1 rely on their overdraft during and after their studies. However, it’s important to ensure that you stay within your overdraft limit because overdraft is a form of credit on your current account. Going into unarranged overdraft or exceeding your overdraft limit is a signal to lenders that you may be struggling financially. If you find yourself exceeding your overdraft limit, make a solid repayment plan and pay it off as quickly as possible, as this can have an impact on your credit score and could cost you money.

3. Have a phone contract or other bills in your name

It’s time to switch off your family mobile plan and start a contract in your name if you can afford to. Many may not realise this but having a mobile phone contract or other household bills in your name, that you pay monthly, is a great way of establishing a credit history.

4. Get a credit card

Getting a credit card after you graduate is great way to start building credit when managed well, and can even come with benefits, such as cashback, increased fraud protection, and free credit monitoring tools, like our own Aqua Coach available in the Aqua app.

Credit cards also generally come with 56 days of interest-free purchases from the time of opening. Some cards on special promotions come with even longer 0% interest periods, such as 6 months or more. If you’ve never had a credit card before, look for a card that will give you a good chance of approval and a manageable starting credit limit, such as a credit card for building credit. Set up a direct debit straight away for the full statement balance and you won’t incur interest on purchases. Then, you’ll be well on your way to building a good credit history.

Top tip: withdrawing cash with your credit card from an ATM will usually incur interest from the moment it’s withdrawn, so even if you pay your full balance each month, you could incur unintended costs. Avoid withdrawing cash if you can.

5. Pay your bills on time

According to Transunion, your credit score is an estimate of how likely it is that you will repay credit on time in the future. Therefore, paying your bills on time might be the most important step you can take to show you’re a reliable borrower. Over time, making payments on time will help build a positive picture of how you manage your credit commitments, which in turn, helps build your credit score.

Conversely, when you have missed or late payments, this lowers your credit score, and your chances of being approved for future lines of credit. Don’t leave it to chance, set up a direct debit to make sure you never miss your payment due date.

6. Get organised

If paying your bills on time is critical to building your credit score, then having enough cash in the bank to cover the bill is equally important. Create a monthly budget to avoid charging more to your credit card than your monthly salary can cover. In fact, it’s important to stay well under your agreed credit limit, so try not to use more than 25% of it. This means if your credit limit is £500, you should try not to use more than £125 per month.

Budgeting is also a great way to reach future goals, such as saving a deposit for your first property. Set up calendar reminders so you know when your direct debits are going out and make sure your current account balance is sufficient to cover the bill.

Five tips for graduates to build a strong credit score

There’s a lot to think about when you first start to build your credit history and improve your score. Here is a recap of our top five things to remember.

  1. Know your credit score – Knowing your credit score before applying for any credit cards or loans can help you know exactly what kind of credit card to apply for. There are a host of free credit monitoring tools available where you can regularly check your credit score. Our Aqua Classic card also comes with Aqua Coach, our free credit monitoring tool available in the Aqua app.
  2. Don’t make too many credit applications – Applying for credit too many times over a short period can actually harm your credit score, so try to limit the number of credit applications you make. Making too many applications within a short time frame might signal to lenders that you’re struggling to make ends meet since graduating and will have trouble repaying what you owe.
  3. Choose the right credit card for you – Make sure to consider factors such as your current credit score, your specific needs as a recent graduate, and the card type when you apply for a credit card. Some cards have an annual fee, or foreign transaction fees. So, think about how you’ll use the card before applying. Figure out how much you can realistically afford to spend on your credit card and still manage repayments on a starting salary.
  4. Stay on top of repayments – If you find yourself coming out of university with debt on your student credit cards or in your overdraft, it’s important to make a payment plan, and stick to it. Paying off your balance on time and in full each month is the number one way to keep your credit score healthy. You’re probably great at remembering deadlines by now but don’t leave it to chance - schedule your payments to go out on time by direct debit to avoid accidentally missing the payment due date.
  5. Remember, building good credit doesn’t have to be difficult – Registering to vote, paying bills on time, and getting a mobile contract in your name are all simple and great ways of building good credit. It’s time to be taken off your parents’ mobile plan and get your own contract.

Sharvan Selvam, Aqua’s Commercial Director says, “Stepping out as a new graduate and entering the world of credit can be overwhelming, but it doesn’t need to be. Following simple steps like creating a budget and making payments on time could improve your credit score and help you reach future milestones - such as getting your first mortgage, financing your first car, or even starting your own business.”

Aqua strives to help you build better credit no matter your financial situation. We aim to give people a chance by saying yes responsibly when other lenders may say no and provide the right tools and support to help you on your way towards a better credit score. Since 2002, we’ve said yes to over 2 million people so they can start their journey towards better credit.

Representative 34.9% APR variable for Aqua Classic.

1 Equifax tips for students with the overdraft

Failure to make payments on time or to stay within your credit limit means that you will pay additional charges and may make obtaining credit in the future more expensive and difficult.

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Failure to make payments on time or to stay within your credit limit means that you will pay additional charges and may make obtaining credit in the future more expensive and difficult.