If you are considering whether to go to university one of the main factors affecting your decision will almost certainly be the financial implications that three years accruing student debt might have. But are you right to be concerned? Well, yes and no. With an understanding of how your financial decisions now might affect your future, you should be able to navigate university and take the step towards the career you want without causing your future self too much hardship. This post looks at the myths surrounding student loans and suggests that university could even be the time to start to improve your financial situation by building your credit score.

Let’s look at student loans first. Ever since universities made the decision to begin charging £9,000 per year in tuition fees, headline writers have revelled in quoting the eye-watering sums of debt that students might be left with on completion of their course. However, these articles often fail to take into account the precise way in which student loans are repaid. The earnings threshold means that you only pay it back once you begin earning £26,000 or more (this was raised from £21,000 in 2018). You pay 9% on anything above this amount. That means for a graduate earning £27,000 they’ll pay back £90 over the course of the year, which should be manageable for most. In fact, many students will never pay back all of their loans, as after 30 years the debt is wiped.

In many cases, failing to pay back a loan would have a negative effect on your credit rating (a score made from a record of all your past borrowing and how reliably you have repaid the money). But the good news is that your student loan has no effect on your credit rating. Unlike other types of credit you may use, such as hire purchase agreements, loans, credit cards and phone contracts, your student loan repayments aren’t governed by a strict timeframe. Instead, repayments are calculated as described above, with money only coming out once your salary hits the £26K benchmark. For this reason your student loan is not strictly a credit agreement and won’t appear on any credit searches. This is both good and bad. Good, because you don’t have the responsibility of calculating and paying back what you owe on time; bad because you’re not yet building your credit rating. Once you leave university (or even before) it might be worth you looking at ways you can start to slowly build your credit rating, as a good score will make it much easier to do all those grown-up things like get a mortgage or a loan when the time comes.

One more aspect of student loans to mention – there’s almost no organisation of repayments required as your student loan is taken directly from your salary. Unlike other loans and credit cards where you might have to remember to make your payments on time, your student loan is dealt with automatically. Anything owed is removed directly form your salary before you are paid. It really is the easiest loan you’ll ever have to deal with.

As far as student loans go then, they are not a debt to be overly concerned about, and certainly should not stop you pursuing higher education if that is the path you wish to take. You only pay them back once you can afford to, the repayments are done for you with no input from you required and they have no effect on your credit rating.

However, that doesn’t mean that university is not a dangerous time for your financial health. It can be tempting to see student life as a carefree time before ‘real’ adult life kicks in. This can lead to foolish decisions, such as maxing out credit cards or neglecting to pay a phone bill on time. The problem is, as soon as you hit 18, you are an adult in the eyes of the credit rating agencies. Any time a payment is missed it results in a negative mark against your credit score. It might not seem important now, but having a good credit score will be important out there in the real world, as it impacts everything from your ability to get a mortgage to the rates you may be offered on a phone contract or car finance.

So what’s the best approach to take? Borrow only what you need to, and make sure you pay back any loans that aren’t your student loan on time. This includes any contracts such as phone or internet as well. Now is even a good time to start to build good habits and engage in some credit building behaviours. In short, just like it’s worth putting in all those hours in the library in the end, your future self will thank you for taking the time to care for your financial health as well.

Don’t forget – if you are renting a property whilst at university, or you start renting when you leave, you can build your credit rating simply by paying your rent on time by using Credit Builder. Find out more here.