As a college student, this is likely the first time you’re responsible for your own finances. The way you manage your money in college can have a longstanding effect on your overall credit. Here are some important things to know about credit and what financial actions can help and hurt you.
Know the difference between your credit score and credit report
You’ve probably heard both of these terms used before, but what’s the difference between the two? Think of your credit score as an overall summary of your creditworthiness. Scores fall between 300 and 850, and the higher the number, the better the score. The average credit score is between 670 and 700, and a score above 720 is considered to be excellent. Lenders use credit scores to determine who qualifies for a loan as well as the terms of the loan agreement.
Credit reports contain more detailed information about your credit history than your score alone. They include payment history records as well as employment, legal, and bankruptcy information. Negative listings on your credit report, such as late payments, loan defaults, or a vehicle repossession, will lower your credit score.
Paying bills late will hurt your credit score
Timely payments are extremely important to your overall credit health. Late payments will appear on your credit report and have a negative effect on your credit score. Create reminders for all of your monthly bill payments like utilities, rent, student loans, and credit cards so that you don’t miss a payment and risk hurting your credit.
Checking your credit doesn’t hurt your score
There’s a common myth that checking your own credit will lower your score, but this isn’t true. Consumers are entitled to one free credit report from each of the three credit bureaus - Experian, TransUnion, and Equifax - every 12 months. You can request one from a single bureau every four months to ensure that you’re always monitoring your credit for accuracy. Credit report errors are relatively common, so it’s important to monitor your information and make sure that everything is accurate.
A potential employer can perform credit checks on you
Employment screening reports have become more and more common, especially for individuals seeking employment in banking and financial services, government, or jobs that require security clearance. They may also be used in various other industries such as trucking, nursing, food, and retail.
There are, however, certain limitations when a potential employer seeks your credit information. They must request your permission by having you sign an authorization before they can access your credit or perform a background check. You’re also entitled to a copy of the report if they choose not to hire you as a result.
Diverse account types will help you
When you start out building your credit, it’s beneficial to have a variety of accounts in good standing. This could include credit cards, federal and private student loans, and other regular bill payments like utilities. This shows lenders that you can responsibly manage different types of financial accounts. The length of time the accounts have been open also affects your score. Older accounts have a more positive impact on your credit.
Secured credit cards can help you initially build credit
If you don’t have credit history, lenders may reject your application for a new line of credit because they can’t ascertain whether or not you’re a risk. Secured credit cards are a good option for those who need to build credit, or for those who have poor credit.
A secured credit card requires an initial deposit which is then used as the credit limit on your card. You’ll get this deposit back if the card graduates to a normal credit card.
You shouldn’t max out your credit cards
Many people don’t know that the amount they spend on their credit cards in relation to their available credit plays an important role in their overall credit health. If you have a credit card, avoid spending more than 30% of your available credit. Spending more can lower your credit score.
Pay close attention to your credit health
Your credit is important for your future, so it’s important to monitor it regularly and stay on top of monthly payments. Healthy credit ensures that you won’t have an issue securing new lines of credit down the road and also sets you up for financial success.