So, just how do I go about earning a "good" credit rating?

JavaScript

Hey all,

So I've been looking through the articles and threads here and there's some really great stuff. However, one area that seems a little neglected is "what to do if you're new to the whole credit thing."

Take me for example. I'm 21 and a university student. I want to start earning a good credit rating. Not because I want credit cards (I'm philosophically opposed to the entire concept) but because one day I'll probably need a mortgage.

So to begin with, I have no credit rating (my mobile phone has always been "Pay As You Go", I always pay my car insurance up front etc.), so getting a credit card from any old bank seems unlikely. But that's okay since I've held a current account with my bank for years. So I go to them and they happily hand me a Student Credit Card with a £500 limit and an array of benefits I'll probably never use. I'm also told there's no annual fee and something like 56 days interest free on purchases. Sounds good so far.

Now I'm stuck thinking "what do I do now?".

Reading online there seem to be a few strategies. The most prominent being "Pay your bills in full and on time." Good advice, only a friend of mine who works in banking tells me that if I do that, I won't generate a credit rating at all!

So the same friend tells me I should pay most of my bill every month, leaving something like a penny. That way, the penny spills over into the following months payment. A month later I should do the same thing and I will have paid off the outstanding penny, plus everything from the month just gone (minus a penny). Apparently I'm now generating a good credit rating, and since the interest on 1p is zero, I'm not losing any money!

Sounds excellent! There's only one problem I can see (and perhaps this is the banks way of discouraging me from doing exactly the above) - If I don't pay my bill in full every month, my bank say I will have to start paying interest on purchases. Not the end of the world, but a little annoying. It essentially seems that I'll have to lose some money in order to generate a good credit rating.

So, what does everyone think? Should I take the hit of a little interest each month or is there a better strategy?

never-in-doubt

Its not missing mate - you never looked hard enough lol:

Perfect thread for you! http://forums.moneysavingexpert.com/showthread.html?t=1626277

Kavanne

You WILL build a credit rating if you pay off in full.

Don't pay interest if you don't need to.

JavaScript

Hi,

Well, I did see your thread there and read the whole thing, but it seems more about how to get a credit card whereas I'm asking what should be my strategy given that I've just got one.

I suppose my questions really are:

1) Is it really a good thing if I let some money spill over each month?
2) Will I really not generate a credit-rating if I just pay everything off in full each month?

EDIT: Just seen Kavanne's reply:

Okay, so if that's the case then it seems I should follow the popular strategy and just pay off everything in full. Or will that make me undesirable to lenders in the future? I read that on the main article and thought "well, everyone pays interest on a mortgage so surely the lender can't lose, even if you've been perfect with your credit cards".

Kavanne

I can only talk from my experience. However, when I applied for my mortgage I had 2 credit cards that were always paid off in full and an overdraft I never used. I was accepted immediately.

I have never had problems getting credit cards. I now have 5 (just closed one, actually) and I only ever use reward cards (ones that give cashback or points) which you can apply for once you've finished uni and have an income.

never-in-doubt

bear in mind leaving a balance on your card also helps cos it shows you can manage money and not just repay it. Two different pieces of data that score separately in your credit score so bear that in mind. Sometimes it does you better to have a small balance outstanding at any one time - it certainly helps you get increases!

Kavanne

I have never left a small balance outstanding and have managed to regularly increase my limits on all cards, except my Amex!!

JavaScript

Hmm...

This is my problem. Everyone seems to have conflicting opinions on this exact point and it's hard to know what's best.

Surely if I pay my credit card bills in full and on time, but also use my debit card for the occasional purchase as well, that should demonstrate I can both repay borrowed money and manage the money in my current account?

never-in-doubt

JavaScript wrote: »

Hmm...

This is my problem. Everyone seems to have conflicting opinions on this exact point and it's hard to know what's best.

?

it is because it is calcuated individually - there is no wrong or right answer. different lenders view different data differently!!!

the word different is key - we are all different and so the products and rates we get offered/not offered are different because we are all different!

JavaScript

Yeah, that's a good point, thanks.

I guess I'll play it safe for now and just pay off everything in full.

Thanks for your help folks

never-in-doubt

JavaScript wrote: »

I guess I'll play it safe for now and just pay off everything in full.

there really is no need, it could pose a hindrance doing so as you are hard to apportion risk when you never have revolving credit. its a catch 22. i'd say it is always better to have outstanding balance carried forward, even a tenner is better than zilch!