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A Guide to Credit Scores for College Students

Credit is one of those things that can seem great at first, but it can quickly get out of control if you are unsure how to manage it. The biggest misconception about credit is that it is a bad thing and you should have none. Without credit, you would have a hard time renting a car when your car is in the shop or getting a hotel room when your vehicle breaks down. Good credit allows you to buy the vehicle you need and the house you want. Instead of running away from credit, it is smarter to develop good credit habits early and use those habits to enhance your financial life.

Credit Score Primer

Your credit score is a numerical representation of your spending and credit habits. It is maintained by credit reporting agencies and utilized by anyone who is looking to extend you credit. Credit reports are also used when you apply for a job, attempt to rent an apartment, and try to set up utilities for your home. The primary factors in determining your credit score are:

  • Whether or not you pay your bills on time and in full each month. This affects approximately 35 percent of your credit score.
  • The ratio of your outstanding debt to your income. This will comprise approximately 30 percent of your credit score.
  • How long you have had a credit history. This affects approximately 15 percent of your credit score.
  • The types of credit accounts you are currently using and how often you use those accounts. This will impact approximately 10 percent of your credit score.
  • The frequency with which inquiries are made against your credit profile and the number of new accounts added to your profile in a short period of time. This will also impact approximately 10 percent of your credit score.

Good Credit Scores vs. Bad Scores

Each credit reporting company uses its own scoring system, but there are a few rules that apply to all of the reporting agencies in general. Credit scores generally run from 340 up to 850. As a general rule, anything at or below 600 is considered poor credit. A credit score in the range of 601 to 740 is considered good credit. The best credit scores run from 741 up to 850.

Student Loans

As a college student, there is a high probability that you will be responsible for student loans. A student loan is considered an installment loan, which can be helpful when it comes to how it affects your credit report. In general, revolving credit accounts (such as credit cards) affect your credit score more severely than installment loans. But paying your student loans late will affect your credit score, so you should always pay your student loans after deferment. While you are in school, your student loans are in deferment and will not have any affect on your credit score.

Credit Cards

College students have easy access to credit cards, and that can be a blessing as well as a curse. The best way to handle credit while you are in college is to have a joint account with your parents and learn responsible credit habits. The responsible use of credit cards can improve your credit score and improve your chances of getting the car and home loans you want after graduation. But abusing credit cards and allowing credit card debt to get out of control can create a financial disaster that will take you years to clear up.

Credit Inquiries

When you are a college graduate just starting out in the world, it can be very difficult to limit the number of inquiries against your credit profile. Potential employers, apartment landlords, insurance companies, and utilities will inquire about your credit as you establish the things you need for your life. The important thing to remember is to control the elements of these credit inquiries that you do have control over. If you join a credit reporting company, you can keep an eye on your credit report and limit the number of inquiries that count against you.

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