Ben's tips for increasing uni student credit scores

Ben_184

Hi all,

I recently went to University, and landed myself a well paid grad job. Part of this job is travelling around 2,000 miles per month, so I decided that I would use my mileage payments to pay the finance on a new car. However, the credit application was declined because of me living at university; I had a different address for each of the three years I was there, and didn't think anything of it as I was at my parent's house on the electoral roll.

However, Lloyds Black Horse finance rejected my application because I had registered with my bank that I lived in the 3 different Uni houses, so that I could have my statements delivered. This has had a major impact on my credit score.

Top tip for students - Don't register with your banks that you live in halls/uni accomodation! I was only living in the uni halls for less than 6 months, but it counted as a change of address!

Second tip:

Bag the biggest overdraft you can, even 2 if you're able to meet the criteria. I have 2 with Natwest and Santander, each require a minimum pay in per month. Just transfer £500 in and out each month and you'll have no problems as long as you don't tell the other that it is a student account. I have a £2,000 limit at each - this shows lenders that I can be trusted with £4,000 of credit facilities, which improves credit score. However, do not use it! Because..

Tip 3:

The usage of available credit harms your credit score. After my changes of address ruined my credit score, it was 140 with Equifax's rating. 8 months at my parents address has helped restore this, but what I didn't realise is that I was using 90% of my available credit because I withdrew all the cash from the overdrafts and put them into Santander's 123 account for some free interest. So as far as my credit report was concerned, I had available funds of £400, despite having access to well over £5,000 cash in the 123 account! All I did was transfer the cash back into the overdraft accounts, and my usage went to 0%. My credit 'score' rose to 360 the next month!

Tip 4:

Your bank looks at the last 3 months of your account behaviour when deciding on whether you can get credit from them. I had my pay transferred into Natwest, but sent most of it to Santander to save in the 123. These savings don't show up on the credit score, and as far as Natwest could see, I had £1900 of overdraft usage with them, and very little available funds. After transferring the cash back into the overdraft, I have been told to put ~£300 a month into a savings account with Natwest, and make sure that my current account balance goes up - no more transferring to Santander! All Natwest care for is the MINIMUM balance of your current account. So you could have a £2,000 positive balance, and flick it into your savings account and back, and all Natwest see is that the mimumum balance in that month was £0, because for 5 minutes you had the cash in your savings account...

I hope some people find these tips useful!

Ben

phona

I don't think you can say with such certainty that the reason you were refused a loan is that you moved while you were at uni. There are likely a range of factors; and from the information you've given I wouldn't hazard a guess.

I'm also a relatively-recent graduate (class of 2013) so your post was interesting to me.

#1: Keep your parents' address for banking
I'm inclined to agree with this, not so much for the reasons that you set out but just that it's an unnecessary piece of admin that could cause things to go wrong ie letters going to old addresses etc. There are clear exceptions to this, though, for example if you move a long, long way away from home and won't be able to pick up post often or if there is a reason not to trust your parents with your financial affairs.

#2 Overdrafts
I would tend to advise against what you seem to be saying here. I don't think it's a good idea to get as much overdraft as you can from multiple banks. For one thing, this is in breach of the terms and conditions which say you're only allowed one student account. Yes, they probably won't find out but that doesn't make it a good idea to give them a reason to close your account and demand the overdraft back. Here on MSE we promote making full use of loopholes in account terms but that is distinct from breaking them. Furthermore, not every student is suitably disciplined to take the overdrawn money and put it in a savings account and so what you propose may well be a recipe for a thread in a few years "help I can't get out of my overdraft and it's costing me a fortune!"

#3 Not using overdrafts
You are correct that using the overdrafts, especially when you have more than one, doesn't look good on your credit report. But you're also correct that there's money to be made by using the free money from Bank A and getting Bank B to pay interest on it. You have to weigh those things up against each other.
Between your 2nd and 3rd tip you seem to be suggesting having multiple overdrafts and not using them, which seems pointless to me. I'll come back to my idea of how to look responsible rather than indebted.

#4 Reporting of overdraft
I don't know where you got the idea that banks look at the last 3 months' transactions. They can look at any information they have and keep their scoring criteria a secret.
Who told you to put £300/month into a NatWest savings account? What good did they tell you it'd do? IIRC NatWest don't have a good rate at the moment; is whatever benefit you get from it worth more than the 3% interest in your 123 account? I have a sneaking suspicion a salesperson at NatWest saw you coming...
As an aside, I'm not sure what specific numbers NatWest like to use in their own calculations but you may be interested to know what they tell others about (that is, what they report to your credit files). From my experience, it is the balance of the account at the start of the 1st of the month. Therefore it is not the minimum in your account in a given month that matters, but the particular amount on the 1st. Therefore you can make it look (to other lenders, not NatWest), that you don't use the overdraft at all by having a positive balance overnight at the end of the month.

I also have one major tip I'd like to share, one I'm very surprised you didn't give. My number one tip to a healthy credit file is to get a credit card. The bank you have your student account with (only one, right ) will probably offer a student credit card. Take it! Use it for your grocery shopping, train tickets, internet shopping, etc and pay it off IN FULL every month. Then when you're in work lenders will see someone with a record of living within their means and consistently repaying what they owe. I think if I were a lender I'd prefer that to dubious inferences from overdrafts.

LplateSaver

phona wrote: »

For one thing, this is in breach of the terms and conditions which say you're only allowed one student account..

Santandar and Natwest didn't have that term when I opened with them. Also isn't in encouraging people to fill out a bank account application with an address they don't reside at encouraging them to comit fraud?

thebritishbloke

You're sort of right, but not quite. Having too much available credit is not a good thing. If you're only earning £10k a year but have £10k of available credit, nobody is going to lend you anymore money.

Having £4k of overdraft facilities is not really a good thing especially if you never plan on using it. You'd be better off having a small one (£500 or so) in case you accidentally dip into it one month. Regular use of a credit card and paying it in full every month is the best way to improve your credit history.

Oh and you don't have a credit score. Nobody does.

phona

LplateSaver wrote: »

Santandar and Natwest didn't have that term when I opened with them. Also isn't in encouraging people to fill out a bank account application with an address they don't reside at encouraging them to comit fraud?

If it's not in the terms for either account then that's absolutely fine but they can and do change terms so worth keeping an eye out for that.
Having more than one big overdraft is still a good way for a lot of people to get into unmanageable debt. A lot of folk round these parts are good with money and would actually keep it in a savings account but many are not and would end up in debt that seems like the answer but isn't the solution (the solution being better budgeting).

For your other point, I think it depends how you define residence. When I was a student I regarded my main residence to be my parents' home; I just happened to be temporarily living elsewhere - similar to the argument for why I was on the electoral register at both addresses. That may not be true for everyone so in the case where someone does not regard themselves as resident there then of course they shouldn't use that address to apply for financial products.

That's my opinion but I'm not a lawyer, nor do I play one on TV.