Understanding Credit for College Students

Thinking About Your Financial Future

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A Crash Course in Credit

Let’s face it: when you’re in college, your credit score may be the furthest thing from your mind. If you’re like most college students, you may not know what your credit score is, let alone what it actually means. Although it’s easy to not worry about credit during your college years, it’s time to start thinking about your financial future. The financial choices that you make in college can impact you for years to come.

First things First: What does your Credit Score Mean?

Your credit score is what lenders use to measure your credit risk, or your likeliness to pay back money that is loaned to you.

There are a few different types of credit scores; the most common one is a FICO score. FICO scores range from 300 to 850, with a score of 700+ considered a “healthy credit score.” When it comes to your credit, a higher score is always preferable as it will allow you to qualify for lower interest rates.

Your credit can affect your ability to get a loan, take out a mortgage, or even attain a job. In addition to conducting background checks, it is becoming more common for employers to run credit checks on candidates. In a competitive job market, bad credit could be something that holds you back from attaining your dream job.

Breaking Down the Numbers: What exactly makes up your Credit Score?

It is important to not only understand what your credit is, but also how it is calculated. Five factors go into calculating your credit score, and are weighted as follows:

  • Payment history – 35%
  • Percentage of credit used – 30%
  • Age of credit – 15%
  • Types of credit – 10%
  • New credit – 10%

Credit Cards: a college student’s resource for building credit.

If you do not already have a credit card, then your college years can be the prime opportunity to start using one! But, be sure that you’re using your credit card as a credit-building resources, not as a means of buying things that you can’t afford. When applying for a card, make sure to fully investigate your options. Don’t be enticed into applying for a card exchange for free pizza. Instead, look for a card that offers:

  • Low APR (Annual Percentage Rate)
  • A grace period if you are late on a payment
  • No annual fee
  • Low penalty fee

When you are applying for a credit card, keep in mind that you need to prove that you are able to pay. If you are under 21, you may need a co-signer, an individual who agrees to assume equal liability for the card and cover the payments if you fail to do so.

As your credit use will show up in your credit report in addition to your co-signer’s, make sure you stay on top of your purchases. Follow these tips to use your card wisely and protect your and your co-signer’s credit ratings.

  • Limit the use of your card – it won’t take long before purchases begin to add up!
  • Pay more than the minimum payment
  • Make sure to pay on time
  • Limit the amount of cards you have

Although most college students are just beginning to get on their feet, it is never too early to start building credit. Follow the tips above to start off the right way with good credit standing!