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Credit and Debt Management


A GUIDE TO CREDIT SCORE FOR COLLEGE STUDENTS

ByLindy Dreyer Last Update onOctober 26, 2023

A typical college student has plenty to worry about, such as paying for school,
holding a job, classwork, and the need to figure out what they are doing with
their lives.

There is however one thing that they do not put too much thought into, and that
is their credit score. Credit is crucial if you are a college student and it is
essential for your everyday life and your financial future, even though you may
not be aware of it yet.



As a college student, your life is just starting, and you are at a point where
you are making critical financial decisions, and therefore credit is an
essential part of your life. You cannot escape it if you want to succeed.
In this guide, we shall explain to you what credit means, how to build your
credit score and how to increase it in case it is at a low point.

Let's get started:


WHAT IS CREDIT?

If you are in college, it is about time that you took complete responsibility
for your finances, and most especially money management. You must start setting
yourself up for a stable financial future, and this is where credit comes in.

You should be extremely interested in credit.



Credit is a measure of your trustworthiness in terms of finances. It can affect
many different aspects of your life such as controlling the amount of money you
can borrow, the interest rates you can be given if you decide to borrow, and
even the types of jobs you can be able to hold.
Credit basically takes into account your entire financial history.

The earlier you start building your credit, the earlier you can start taking
advantage of good credit. This will definitely save you vast amounts of money in
the future, and it will also give you an opportunity to cultivate a saving
culture.


HOW CAN CREDIT SAVE YOUR LIFE?

As mentioned earlier, the credit will affect specific aspects of your life such
as the interest rates you shall be given when you take out loans, which includes
car loans, mortgages, etc.

You may think that the interest rate is not all that important, if the
difference is too small, such as the difference between 3% interest rate and 4%
interest is only 1%. If you pay an interest rate of 3% instead of 4% on a
mortgage of say, $200,000 you will end up saving more than $40,000, which is
quite plenty, if you think about it, and so, the interest rate is extremely
important.



Moreover, having good credit can also affect your ability to access certain
healthcare services. For example, if you need a prescription for generic Cialis,
a medication used to treat erectile dysfunction, you may need to pay for it out
of pocket if your insurance doesn't cover it. However, some pharmacies and
online retailers may offer discounts to customers with good credit scores. So,
having good credit can not only save you money on loans, but it can also help
you access the healthcare treatments you need.

In order to get the lowest interest rates, you must have good credit.


HOW IS CREDIT MEASURED?

Your credit is measured using a score known as “credit score.”


WHAT IS CREDIT SCORE?

This is a code that comprises of three numbers. These numbers basically sum up
your credit history. They are used by most lenders to determine whether you are
worthy of credit or not. The score is usually calculated by credit bureaus using
a secret process that they never disclose.

Credit history



Your history shows the number of credit accounts you currently have. This means
the loans you have taken out, and any credit cards you currently possess. It
will also include information about mortgages as well.

In addition, your history will tell the lender about how severe your late
repayment history really is.

Credit inquiries

Usually, these are made by creditors, and they find the information about you
from the various credit bureaus, who tell them whether or not you qualify for
additional credit. The calculation that is usually done on your credit report
will also give the creditor information on whether you have the ability to take
on more credit or not.

Okay, back to credit score;

The score is designed to predicting the likelihood that you are going to meet
your obligations, and if you will delinquent on your payments.

One of the most common misconceptions is that everyone is assigned one score
that is used by all lenders and credit bureaus to, but this is not the case.
Most people have multiple scores which are slightly different because of the
multiple numbers of credit bureaus, the different score methodologies and your
credit information which is updated regularly.

There are hundreds of credit score companies, but the most common ones, and
which we shall talk about are FICO Score and Vantage Score.

You do not have to worry about all the other credit scores for the other
companies, and you should only keep track of the well-known scores from the
above two companies, which are used by majority of the lenders in order to
qualify you for credit.

A credit score ranges from 300-850 and depending on your score; you will be
rated as either very good, good, fair, and poor.



 


HOW IS CREDIT SCORE CALCULATED?



 

Credit bureaus such as TransUnion, Experian, and Equifax normally collect
millions of data that scoring agencies, and others use to crunch up and create
your score.

Financial institutions, banks and credit card companies normally play dual roles
when it comes to your credit information. The first is to approve you for credit
when you apply for a loan, and the other is sharing your information with credit
bureaus about your behavior, in terms of repayment history.

The scoring agencies then use the credit information in your credit report to
calculate your credit score.


WHAT INFLUENCES YOUR CREDIT SCORE?

There are many factors that come to play when it comes to your credit score. As
mentioned earlier, this is not a random number, and it requires plenty of
information before it can be calculated.

As a student who wants to manage your financial information, it is important to
understand what has the potential of affecting you in terms of good or bad
credit. Here are a few points you must be careful with because they
inadvertently lead to a bad score;


YOUR REPAYMENT HISTORY:

This is the most important factor when it comes to the calculation and
determination of your credit score. This is because it is able to show lenders
whether you have been reliable in making payments for the loans you may have
taken out in the past.

It is a very strong indicator of whether you are going to pay back the loan, or
not. For this reason, if you have had one or two late payments that you thought
did not matter, you may be in for a rude shock. Those few payments could
potentially hurt your credit score.

If you have had multiple missed payments, these could lead to a “derogatory
mark” on your credit report.


AGE OF YOUR CREDIT HISTORY:

Having a long credit history will potentially improve your credit score, as long
as it is filled with on-time payments from your open accounts. Factors such as
how long your account has been open, i.e. the age of your oldest report, and how
long its been since you made your last payment can factor into your credit score
rating.


CREDIT CARD UTILIZATION

This is very important and it is used to check the overall limit on your card.
These are the cars you are currently using. The rule, according to experts is to
always ensure that you spend less than 30% of the limit on your card.

The higher the rate of utilization, the lower your chances shall be of being
approved for credit, and it also shows your potential creditors that you really
cannot be trusted when it comes to loans.


FICO SCORE

This is a popular credit score source that was made by the Fair Isaac
Corporation.

Its range is between 300-850.

If your score is over 670, it is considered good, and anything that goes beyond
800 is excellent.


Credit Score
Rating
% of people
Impact300-579Very poor17%Applicants with this rate cannot be approved for
credit, and they are required to pay a fee or deposit some money when applying
for credit.580-669Fair20.2%Any applicants in this range are subprime
customers670-739Good21.5%Only 8% of customers in this range of credit score are
likely to delinquent on their loans.740-799Very Good18.2%This category of
customers will get very good interest rates from
lenders.800-850Exceptional19.9%This is the top list of customers who get the
best rates and the highest loans.


VANTAGE SCORE:

Actually, this is a score that was developed by the three main bureause, i.e.
Experian, TransUnion and Equifax.


Credit Score
Rating
% of people
Impact300-549Very poor16.7%Applicants with this rate cannot be approved for
credit.550-649Poor34.1%In this range you can be approved for credit, but the
rates will be unfavorouble.650-699Fair18.3%You will be approved for credit but
not at favorouble rates.700-749Good12.6%This category of customers will get very
good interest rates from lenders.750-850Excellent30.3%In this category,
applicants will receive the best rates and the most favorable conditions.


CONCLUSION

As a student, you may be thinking that it is too early to start thinking about
your financial history and your future, but its never too early. Avoid taking
out loans that you do not necessarily need, and most important of all, DO NOT
take too much credit card debt.

Credit card debt is cripling a majority of Americans, and they will tell you
that it started while they were young. This will mess you up later on in life,
and therefore be very careful how you conduct yourself when it comes to money
matters. You could end up paying for your mistakes for the rest of your life.

> The article was written by Lindy Dreyer, and then revised by her
> teacher Robert H. Frank.



Lindy Dreyer

Growth Hacking Queen & Saving Money Geek:), melds digital innovation with
financial wisdom, shaping the future of marketing and mentoring the next
generation of financial experts.




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