At present, around £20 billion in student loans to 1.5 million people in higher education in the UK. The total value of outstanding loans at the end of March 2021 reached £141 billion, with this sum expected to reach £560 billion by the middle of the century.
Students may also take on additional debt during the course of their studies, increasing the chances of them incurring bad debt in later life.
In this post, we’ll ask how you can avoid building a bad credit score as a student and lay the foundation for a more prosperous financial future.
#1. Pay Bills on Time
While few people have landlines in the modern age, most students will have a mobile phone in their name. Remember, the smartphone penetration rate in the UK peaked at 92%, while this number will rise to 94% by 2025.
This means that you’ll likely have a monthly phone bill to pay, along with other potential commitments such as groceries and utilities if you’re house sharing with fellow students.
It can be challenging to keep on top of these commitments, so it’s important that you budget your finances and ensure that you continue to spend within your means.
This will make it far easier to repay your debts in full and on-time, reducing the likelihood of you incurring bad credit in the future. If you fail to repay your bills, you’ll find it harder to maintain a positive credit score going forward.
#2. Minimise Your Debt Levels
You should also strive to avoid taking on unnecessary debts, in order to minimise your total liability and the amount repayable in the short and longer-term.
You should certainly try to avoid taking on credit card debt, which is usually subject to increased rates of interest and liable to accumulate quickly within a relatively short period of time.
However, if you do need to borrow as a way of bridging the gap between student loans, we’d recommend taking out dedicated loans for students with bad credit that are quick, accessible and cheaper to repay. This way, you can control the terms of your borrowing and leverage only short-term debt.
#3. Minimise Your Spending
On a final note, it’s important to minimise your spending when looking to optimise your credit score.
After all, excessive or irresponsible spending is what leads to mounting debt, especially when you struggle to repay the principal amount and you’re lumbered with mounting interest repayments.
This can also cause you to go into an unplanned overdraft and incur further charges on your bank account, which may recur each month if you fail to clear your liability.
Fortunately, you can calculate your spending as part of the wider budgeting process, by accurately estimating income and outgoings to create a fixed amount of disposable income each and every month.
