Ah, the early financial expenses of your first independent living situation. Divvying up the bills with your new flatmates, deciding on a decent broadband package, chipping in to buy the hoover. Does anything taste sweeter than the first glimmer of responsible adulthood?
Then the admin ground you down. Your reprobate flatmate spending his whole student loan on a PS5. Your boyfriend dipping into the council tax Monzo pot to supplement his coke habit. The cost of water bills that you didn’t know were a thing. And while these circumstances can be a massive source of stress in the short-term, they could also impact on your credit rating in the long-run, too.
According to a 2021 study by Compare The Market, nearly half of all 16-24 year olds don’t fully understand what credit ratings actually do. VICE spoke to some experts about whether your credit rating really matters, what you can do to improve it, and whether or not your financially useless flatmate has been shitting all over your future.
What is a credit score, anyway?
“A credit score is basically a number that reflects how good you are with credit,” explains Jayna Mistry, a senior PR and communications manager at ClearScore, the first company to launch a credit checking app in the UK.
“What's really important is actually all the information on your report. Say you've got a credit card with Lloyds: As you use your credit card, they will report into credit reference agencies on how much you've used, whether you've paid it back or whether you've missed any payments.”
Basically, it’s the information that future lenders like banks will look at to decide whether you are a trustworthy person or a total liability.
What happens if I have a bad credit score?
“We have this tendency to say ‘good’ and ‘bad’, but we're actually talking about high and low,” Mistry says. “Somebody who is 18 years old is new to credit, and they might have what would typically be seen as a ‘bad’ score, but that's only because they've not been using credit before.”
Whatever your reason for having a low score, she continues, “it could prevent other lenders from seeing you as a credible borrower, affecting your chances of getting a good mortgage rate or decent finance options in the future”.
It’s easy to think ‘whatever, I’m years off buying my own place’, but your credit score influences more than just your future mortgage. Say you need to cover an unexpected expense, like your boiler packing in, or you want to borrow money to buy a car. Having a low score could limit your ability to get a loan or a credit card. Want the new iPhone on contract? Companies may turn you down if you have a poor credit score. In short, it’s about more than just being able to buy a house in the near future.
How can I check my credit rating?
"A lot of people might not know that they have a credit rating to begin with,” says Sho Sugihara, the co-founder and CEO of credit-building company Portify. “One thing to know is that your credit file is a statutory right and you have access to it, for free, regardless of anything that people try to sell.”
Americans have one regulator called FICO, but we have three main credit bureaus here in the UK: TransUnion, Experian and Equifax. You can check your credit score for free at Credit Karma for TransUnion, ExperianExpert for Experian, Clearscore for Equifax.
“In terms of their utility, there isn't that much difference,” Sugihara says. “There are a few instances where one mortgage lender might not look at your Experian credit score, but [another] might look at your TransUnion score, or another credit assessment team might look at all three – but they all essentially do the same thing.”
Can anything or anyone else affect my credit score?
"These days credit checks are on the person – on you – not the people you live with, although that did used to be the case," says James Jones, the head of consumer affairs at Experian.
But, he warns, “someone else's information can come into the equation if you've linked credit with them. Say you've taken out a joint bank account with people you live with, to make it easier to pay the bills. If that bank account goes overdrawn because of the actions of one of the account holders, then obviously that's going to reflect badly on you.”
More importantly, Jones says, “having that joint account will also register a link on your credit report, so if you apply for credit in the future just in your name, the lender can actually look at the other people's credit reports too. If they've gone on to get into serious financial problems, that will also reflect badly on you.”
And if you’re the responsible housemate in charge of paying your flat’s utility bills out of your own account? Your utility company may also report any missing payments to credit reference agencies, and this will in turn affect your own credit score.
What can I do about it?
Other than making sure your feckless flatmates contribute to the bills on time, Jones says that “one of the things we say to do when you check your report is to look at the section we call 'financial associations.’”
“That's essentially a list of anyone you've linked up with in the past,” he explains. “It can include housemates if you've taken out joint products, but more commonly, it will be ex-partners or partners.”
The way to fix this is by “contacting the main credit reference agencies – Experian, Equifax and TransUnion – going onto their websites, to the contact section and asking for what we call a ‘financial disassociation’.”
“You just need to provide the other person’s name and address and say you're no longer linked. Assuming we've got no evidence of an active account in both your names, we'll break the link and it's normally as easy as that.”
So how can I build my credit score?
All of the interviewees recommended registering to vote, as that will also put you on the electoral roll, showing lenders that you have a fixed address and are therefore trustworthy. (And don’t forget to exercise that vote once you’ve got it.)
Services like ExperianBoost or Portify, which Sugihara co-founded, send positive data to credit bureaus – phone bills, direct debits or any other information that they might have overlooked – to improve your score.
Jones says that taking out a credit card and paying it back each month might be beneficial, but cautions that you have to “make sure you think carefully about it and make sure you have a plan to pay it back”.
It’s easy to get daunted by all this, especially if your score isn’t exactly doing great, but information about missed payments, bankruptcy or county court judgments (where you have to go to court over your debt) are wiped after six years. And next time, screen your housemates a little better – or at the very least, avoid setting up a joint bank account with them.