Why college students need to worry about their credit score more than anyone else

The last thing on most college students’ minds is their credit score. But at the same time, this number will define their financial lives for years to come. And making poor choices today could impact their lives for decades.

A key part of this is helping college students understand why their credit score matters – most students don’t. Most students don’t realize they have one. Financial aid offices should make understanding credit a requirement before students borrow, but we are years off from that happening.

Let’s break down why a college student’s credit score matters the most.

Setting the Tone for Future Credit

A college student’s credit score is based on a variety of factors, from credit length, to the types of loans a student has.  The biggest factor, across all of the major credit reporting companies, is credit history. This simply means the student paid all of their bills on time. This makes up 35% of the credit score calculation – and it’s also the easiest to ruin.

The reason that this score is hard for college students is due to students charging a purchase, taking out a student loan, and simply not making sure their payments are made on time.

The result is scary – and it can damage a college student’s credit for years.

The Need for a Strong Credit Score Today

The need for a great credit score is growing everyday. You need an excellent credit score to obtain the best rates on everything from cars to utility bills.

If college students ruin their credit score early, they could face difficulties:

  • Renting an apartment: landlords typically run credit checks on all applicants and look for good credit as a sign of responsibility.
  • Getting a cell phone: cell phone companies will typically ask for large deposits if you don’t have excellent credit.
  • Getting car insurance (let alone buying a car): car insurance companies will require deposits for poor credit, and you may not even be able to get a car loan without good credit.
  • Getting a job: many of the best jobs require good credit, and certain government jobs require a credit check in order to get a security clearance.

The Score May Matter Immediately After Graduation

Beyond the needs today, students may not realize the need they have for their credit score immediately after graduation.

If students want to refinance their student loans (at least with a private lender), having a great credit score is key. Having a great credit score could potentially save $100s per month in student loan payments with the right refinancing plan.

Simple tools to Help

There are a lot of ways that college students can be vigilant with their credit. First, it’s a simple matter of financial organization. Students should use free tolls to keep track of all of their accounts; like an app on their phone. The simple act of keeping track of everything significantly improves the odds of making all bill payments on time.

When it comes to credit specifically, student can get a free copy of their credit score, which will allow students to see their whole credit profile, and what steps they can take to resolve any potential issues. If you don’t want your score, just your credit report, you can see your report for free once per year at Annual Credit Report.  This is a government-run website that allows you to see your credit report, but doesn’t give much more beyond that.

A great way to establish or rebuild positive credit is by using a secured credit card. A secured credit card uses money you place in a security deposit account as collateral. It works just like a traditional credit card. You can use it for everyday purchases as well as for transactions where cash or debit cards aren’t accepted (like for reservations for a hotel room or a car rental). Eventually, responsible credit behavior will raise credit scores and can help demonstrate credit worthiness, qualifying consumers for better terms on big ticket items. To learn about secured credit cards, visit PayToo.

It is imperative that college students take these simple steps today to prepare themselves for their financial future.

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