I remember it all vividly. Nick and I had been dating for a few months, he came over to my house, we exchanged pleasantries, then I quite frankly asked “so, what’s your credit score?”
Your credit score is an indication of how credit worthy you are and is used by lenders to decide whether you qualify for products such as a mortgage, credit card or loan.
Your score is used to decide:
- Whether or not to lend to you
- How much interest you’ll be charged
- The amount you can borrow
There are three main credit reporting agencies in the UK: Experian, Equifax and TransUnion. You can check your credit score for free using websites such as ClearScore, MSE’s Credit Club and Noodle.
According to the Money Advice Service, 18 per cent of young adults have borrowed money from a friend or family member to pay for necessities like bills. Also, with increasing property rental costs, my generation are seeking out unnecessarily expensive loans and other forms of credit just to support day-to-day living, which in the long term, can have a negative impact on their credit score.
Although quite early in the relationship, I knew Nick would become a long-term partner. We would eventually reach a stage where we would be merging accounts and buying a home together. Therefore, both our credit scores would be taken into account when applying for joint credit, which means we could miss out on our dream home, or even get rejected for a car loan if our finances were not in order.
I’ve shared this story amongst friends, and many have commented on how forward I appear. Finances are a sensitive topic for many, and everyone will react differently when probed with this question, yet it is still a very important conversation to have.
I’ve outlined a strategy on how best to discuss this in the relationship.
- Start by discussing future goals. This may include buying a first home or even travelling around the world. Detail the steps you need to get there and how much it may cost.
- Set a date and time to discuss finances. Its easiest when people are not surprised by the topic and after a stressful day at work on a Friday night may not be the best time. Setting a date can give both parties time to prepare for the conversation.
- Location is Key. It is important both parties feel they are in a safe place that encourages openness. This may be after a home cooked dinner or even at a local park.
- Show your finances first. Taking the lead will shows your willingness to be transparent and will encourage your partner to do this same.
What to do if you or your partner have a low credit score? There are many things you can do to start improving your rating today:
- Sign up to the electoral roll. (https://www.gov.uk/register-to-vote)
- Pay for your bills on time. Set up automatic direct debits to the day after you get paid to ensure all your bills are paid off on time, before you get a chance to spend your pay check.
- Reduce any existing debt. Spend a day analysing all your credit cards and loans and create a plan to pay them off. If you’re struggling with this, give your credit card company a call and they may be able to offer some assistance.
- DO NOT max out your credit card. This is an indicator of financial difficulty and can negatively impact your credit score. A credit utilisation of less that 30 per cent is ideal. For example, if your credit limit £1000, avoid using over £300.
- Get a credit card. Now this may seem counterproductive, but a good credit score requires a long history of borrowing and paying back to show you are able to manage any debt. Applying for a credit card can help with this. You can use a credit card to pay for inexpensive bills, but you must ensure you pay it back in full each month to avoid any interest.
- Check for mistakes on your file. Something as simple as an incorrect address history could affect your score
For more information about credit scores and money management, visit https://www.instagram.com/moneymedics/?hl=en
About the author
Eve is the co-founder of Money Medics, a platform that provides healthy money management to millennials.
Eve first had to get to grips with money after buying a car for £10,000 at the age of 21 which forced her to re-evaluate her finances. Learning the hard way, Eve learnt to save and budget and set her sights to her next goal: to invest wisely by purchasing her first home, which she proudly accomplished at the age of 24.
Now a landlady and a prolific budgeter and investor, Eve’s mission is to empower others to financially flourish from starting school through to starting a family.
