Question: I live in shared accommodation, will my housemate's credit rating affect my likelihood of getting a credit card?
Answer: This is a common question when it comes to credit ratings, particularly as it affects younger people who either do not yet have a credit file, or have poor credit and are struggling to get a credit card.
Quite simply, the financial situation of your housemates shouldn't affect your own credit rating. Your credit file is a record of your own financial history, and how you've maintained your repayments.
If you're a tenant, rather than a homeowner, the home you're living in should have no relation to your credit file, and neither should the people you live with. Credit checks are made against the individual, not against the household or address. If you see debt collection notices coming through your mailbox to someone you live with you don't need to be concerned that this will negatively impact your own credit score.
This should put your mind at ease, especially if you do not know the financial situation of housemates you may not know well before moving in with. Conversations about household finances can be uncomfortable to have, especially with people you may have only just met but its important to have them as you take on these new financial responsibilities together.
The only way your housemates or flatmates will influence your credit rating is through an error, or if you fall behind on payments as a result of their actions.
To eliminate the possibility of any errors make sure you get a copy of your £2 statutory credit report from each of the three main credit agencies: Experian, Equifax and Callcredit. Check this file carefully to make sure all the details are correct. It is a good idea to view your credit report periodically, whether you have housemates or not. This is because you should always stay on top of your financial standing, especially if there are any errors in the reports.
When it comes to paying for household utilities and council tax you could also consider offering to handle this from your own account.
Basic household bills are a great way to build up your credit file and increase your chances of getting a good rate when you come to borrow later in life.
Of course you should only do this if you are able to cover the payments without exceeding your overdraft limits or paying interest for borrowing.
The downside of using this method to improve your credit rating by taking on household bills is that if a housemate fails to pay their share of the bill, this could impact your own credit score. Although it may be frustrating to be checking that your housemates are making their payments every month or quarter, it is sensible to do so. You want to avoid being penalised for someone else failing to pay a bill.
Consider setting up a direct debit for the full amount of the household bill from your own personal account for each bill, ensuring there is a sufficient balance in the account each time to pay the bill. You'll still need to check each of your housemates has paid their share of the bill into your account, but you won't risk your credit standing if they miss a payment, as you will have covered it for the time being.
If you move out of the property it is very important that you remove your name and responsibilty from the account when you vacate the property. Failure to do this could mean you have a financial obligation to a property you don't even live in. If none of the cionintuing housemates are willing to accept the transfer of the obligation into their name(s), simply inform the bill provider you are terminating the account - it is no longer your responsibility once you vacate the property.
Another way to improve your own personal credit is to enter into a joint financial commitment such as a loan with someone who has a good credit rating, such as a spouse. Both of you would then be responsible for meeting the obligations of the commitment (like repayments). It is not advisable to enter into an arrangement like this with a housemate unless you are comfortable and confident each of you will be able to make the repayments. You could either damage someone else's credit rating through no fault of theirs, or they could damage your rating. Neither is ideal for someone you are living with.