building a good credit score in college

As a college student, you may find the idea of a credit score a bit intimidating since you are becoming financially independent for the first time. Use this guide to help you understand the importance of having a good credit history and figure out how to build a good credit score while still in college.
 

What Is a Credit Score?

A credit score is a number that represents the likelihood that a person will pay his or her debts. Your credit score is calculated using a formula that is based on information in your credit report. The formula most commonly used to determine a credit score is called the FICO model. While the exact formula for calculating credit scores is kept secret by FICO, these are the main components:

• Past payment history: 35%
• Total outstanding debt: 30%
• Length of credit history: 15%
• Types of credit used: 10%
• Recent credit inquiries: 10%

A FICO score is between 300 and 850. The higher this credit score, the better. Having a FICO credit score of 750 or higher is considered excellent credit.
 

Reasons You Need a Good Credit Score

After college graduation, you will start making life changes that will involve having a good credit score, which is why it is crucial for you to begin building credit while you are still a student. Here are just a few reasons why credit scores are so important to college students/recent graduates:

• Hiring companies may use credit reports to help determine eligibility for employment.
• Landlords use credit scores to verify eligibility for renting an apartment.
• Bank lenders use credit scores/reports to ascertain eligibility for a home loan, car loan, etc.

If you have a low credit score, then you run the risk of not getting the job you want, having to pay more in rent or security deposit for the apartment you want, and having to pay higher interest rates when taking out loans for a home or car.
 

How To Build a Good Credit Score

Since you are a college student who is just beginning to establish yourself financially, you probably don't have much of a credit history or past payment history. Because of this, your credit score will be relatively low. Use these suggestions to gradually build your credit score and establish a good credit history during your years in college:

• Open a checking/savings account. Active banking accounts will provide you with a stable financial history. Just be careful not to overdraw on your account.
• Pay all of your bills on time. This includes cell phone bills, utility bills, cable/internet bills, etc. More and more companies are now reporting unpaid bills to the credit bureaus via collection agencies, which can lower your credit score by 50 points or more. If the bill is in your name, pay it on time.
• Ask permission to become an authorized user on your parent's credit card. This is a great way to establish credit without getting in over your head with credit card woes. As an authorized user, you can use your parent's low balance credit card, and your use of the card is reported to the credit bureaus in your name. This works well for students who need a little parent supervision as they begin using credit cards for the first time.
• Apply for your own credit card. When you have established a little credit history, it's time to apply for your own credit card. Be sure to shop around for the best card. Ideally, you want a credit card with no annual fee and a low interest rate. You can compare rates and fees at creditcards.com. Keep in mind that due to credit card legislations, lenders cannot issue a credit card to you if you are younger than 21 unless you can prove that you can afford payments or you get a parent or other older individual to co-sign. Once you obtain a credit card, you should use it sparingly and pay off the balance each month by the due date. If you do this for a year or two, you will build a history of responsible credit use and improve your credit score. Make sure to read Avoiding Credit Card Woes for more information about being a responsible credit card user.
• Monitor your credit report. Because credit agencies can make mistakes, be sure to review your credit report annually and question any discrepancies. The Fair and Accurate Credit Transactions Act gives everyone the right to receive their credit report from three credit bureaus, Experian, Equifax, and TransUnion, every 12 months. During the COVID-19 pandemic, these credit bureaus are offering free weekly online credit reports. To receive your free credit report, visit annualcreditreport.com.

Establishing and maintaining a good credit score requires effort and personal discretion. By using the above-mentioned suggestions, you can begin building a solid credit history that will benefit you in future endeavors.