Managing my money for young adults
Managing my money for young adults

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

Managing my money for young adults

2  Credit reference agencies and you

Your credit score, as calculated by the credit reference agencies, is a key factor in your ability to borrow money.

As soon as you open a bank account or take on a credit card from the age of 18 your credit history is recorded and a profile of you starts to build. The main UK credit reference agencies are:

These agencies will score your creditworthiness and keep a credit file on you.

Where do they get the information about you?

This is provided by your bank or credit card provider and other organisations that have extended credit to you. They include your phone provider if you have a contract with them.

The information covers the amount of credit granted to you, whether you make repayments on time and the proportion of your bill that you repay each month.

Your credit score will be accessed by financial and other institutions when you’re seeking to borrow money from them. A poor credit score may mean that you will be turned down when you apply to borrow money, for example a mortgage to buy a property. However, banks and other lenders normally take a broader look at your credit history when making lending decisions rather than focusing solely on your credit score – although they will be interested if your score has markedly changed recently.

Have you taken a look at your own credit files? It’s recommended that in future years, and particularly when you become active borrowers, you should keep an eye on your credit files at least once a year.

Watch this video where Martin Lewis uses a storyline based around exchanges in a non-alcoholic bar to illustrate the key principles that will affect a person’s credit score.

Download this video clip.Video player: mmmft_1_video_week7_lewis_creditratings.mp4
Skip transcript


One of the things that is going to happen in your life, you're going to have to manage your credit score. You're going to have to manage your credit worthiness. Whether you get a mortgage or not depends on this. Whether you get a mobile phone on contract depends on this. Gas and electricity by direct debit can depend on this. Certainly loans and credit cards depend on this.
Soon renting is going to be on your credit files. If you want to rent, they're going to be able to look at that. It has started in the trial in some areas. Whether you're able to get car insurance paid by the month depends on this. Never get car insurance pay by the month. It's a loan. It's very expensive. Try and pay it up front. You'd be better to borrow it elsewhere. That was an aside. We'll move on.
All of those things, your credit score is important to. Now, here's the point. When they credit score you, they are trying to predict your future behaviour based on your past. So we'll play a game with you, alright?
So we're in a non-alcoholic pub now because you're too young. We're in a non-alcoholic pub. I'm an old friend of yours. We're in there. I always forget my wallet. I do it every time. I forget my wallet. And I say, will you lend me 20 pounds so I can buy a round, and I'll buy you back a drink tomorrow when I've got my wallet? And you know I've done this 40 times before, and every single time I've always paid you back the next day. Would you give me the money?
Yeah, because I have a history of doing this, but I've also got a history of paying you back. So you know it's a very limited risk doing that to me. Question number two. We're in a non-alcoholic bar. We've been friends for quite a while. I forgot my wallet, which I do quite a lot. I ask, will you lend me 20 quid and I'll buy you a drink back tomorrow? And you know that in 15 of the probably 20 times I've done this I always forget to pay you back. And even when you ask me, I don't give you the money. Would you give me the money?
No, because I've got a bad credit history, haven't I? I've got a bad record of paying you back. Why would you take that risk with your money? This is how credit scoring works. So they look at your data to do this.
Question number three. This is you now. You come into the bar. I'm there. I've never met you before. You look a very nice person. You say, I'm really sorry. I forgot my wallet or purse, whichever gender you want to use it, it's not gender-stereotyped anymore. I forgot my wallet, will you lend me 20 quid and I'll buy you a drink tomorrow? And I've never met you before. Should I lend you the money?
Probably not.
No. You may be a very good risk, but I don't have any data. So why would I give it you? That's how credit scoring works. You get rejected if you can't afford to pay it. Well, there's one final category, actually, go back to the first one. We're in a non-alcoholic bar. I go up to you. I've previously borrowed 20 pounds off you each time and I've always repaid back, but I've just lost my job, and you know I'm skint. Would you lend me the money? You might give me the money, but would you lend me the money?
Probably not.
Probably not because I've got a drop in income, which would affect it even if I've got a good credit history. That's how it works. But let's go back to the you scenario. Your issue is a lack of data. So to get people to lend to you, bizarrely you need a history of borrowing. So we got a catch-22, haven't we? I've never borrowed, so I can't get borrowing.
How do we break that catch-22? You get a special product like a student credit card that's willing to look at people who've never borrowed before. And you get a student credit card. And you put 50 to 100 quid a month of normal spending on it, things you'll buy any way, not an excuse to spend any more. And you do that. And you pay it off (SHOUTING) in full. Let's all do one. You pay it off
(SHOUTING) In full.
That will do. Right, you pay it off in full every month, so there's no cost to you because if you pay a credit card off in full every month, there's no cost to you. And you are starting to build a history as a good credit citizen. So if you've got good impulse control, if you will not spend money on it, if you will not use it for borrowing, then getting a credit card at a young age is actually a good thing to do because it builds your credit history. If you've got bad impulse control, don't touch it with a barge-pole.
End transcript
Interactive feature not available in single page view (see it in standard view).

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to University-level study, we offer two introductory routes to our qualifications. You could either choose to start with an Access module, or a module which allows you to count your previous learning towards an Open University qualification. Read our guide on Where to take your learning next for more information.

Not ready for formal University study? Then browse over 1000 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus371