Should you start building your credit while in university?

University can be a time of life when you start to fully realise your potential. This includes your financial future, which may involve establishing your credit history.

What is a credit score?

Your credit score is a number that summarises your history of borrowing and repaying debts. Credit scores are generated based on your credit history, which is collected in your credit file by credit bureaus.

Banks, lenders and other financial service providers use credit scores to assess whether a potential customer is responsible with money, or if they’re likely to miss payments and default on debts. Borrowers who make their repayments on time are more likely to have good credit scores, while borrowers who have late payments and defaults in their credit history are more likely to have bad credit.

Do you need to have a credit score?

Not every Australian has a credit score – if you don’t yet have a credit history, there’s no information about you available to send to credit reporting bureaus. In theory, an Australian could live their life without ever applying for a credit product, and thus never have a credit file to generate a credit score.

However, not having a credit score could be an issue if you ever do choose to apply for credit. As there would be no information about you available to generate a credit score, banks, lenders and other credit providers could consider you an “unknown” and may not want to risk lending you money… or at least not at their best rates.

Do you need to worry about your credit score if you don’t plan to borrow money?

Even if you don’t plan to apply for credit products such as credit cards or personal loans while you’re at university, your credit score could still affect your lifestyle.

It’s not just financial service providers that conduct credit checks. Telecommunications companies and energy retailers also often conduct credit checks as part of an application, whether you’re purchasing a post-paid phone plan, or putting your home’s energy, gas, or internet account into your name. This is so these companies can get an idea of whether or not you’re likely to pay your bills on time.

If you don’t have a credit score, or if your credit history is filled with missed payments and defaults, there’s a chance you may not be able to get the phone or energy plan you want when you apply, and may have to settle for a more basic offer.

How can you start building your credit score at university?

The first step is to establish your credit history. This could involve getting a phone, internet, or energy plan in your name. You could also apply for a credit card (such as a student credit card) or if you need finance, a personal loan, if you can afford one on your income and expenses while at university. Be sure to compare the available options, remembering that the more basic ‘no-frills’ credit products may be more affordable than the options with all the bells and whistles such as rewards programs. And always remember - as tempting as access to some quick cash through a personal loan may seem, you could be doing more harm than good if you can’t keep up with the repayments.

The next step is simply to manage your money sensibly and keep up with your payments. Australia’s Comprehensive Credit Reporting laws mean that credit providers don’t just report negative events like missing a payment to credit bureaus – they also report positive events, like paying your bills on time and successfully paying off loans in full.

If you can demonstrate during your time at university that you can responsibly borrow money, repay debts, and generally manage your personal finances, you can start building up your credit score. This could have benefits for you later in life, such as when you may want to apply for a car loan, or even a home loan, and don’t need past money mistakes holding you back.