Student Credit Score: Understanding Credit Scores for Students

Students can get good credit by using student loans. Federal student loans do not need a credit check; thus, you can get these loans based on financial needs without any credit history. And if you begin paying them back immediately after graduation, they are a great way to start building your credit history.

Whether you are in college or just graduated, chances are you do not have much credit history. And that is not a bad thing. You have not needed credit up to this point, and this is the time when most people get concerned about things such as credit cards and credit scores.

But now that you are in your 20s, it is about time you start thinking about building good credit. College is a great time to embark on building credit. However, many college students are beginning from scratch. Continue reading to learn how to build credit as a student.


What is credit?

What do you mean by credit?

Credit is a quantification of your financial trustworthiness. It is maintained by credit bureaus and utilized by anyone who is looking to extend your credit. Credit reports can influence many different aspects of your life, such as controlling how much money you can borrow, limiting which jobs you can hold, and limiting what interest rates you get.

Credit accounts for your entire financial history. It is one of those things that can appear great at first, but it can get out of control quickly if you are uncertain how to manage it. The biggest myth about credit is that it is a bad thing and that you should have none. On the contrary, the earlier you start to build your credit, the earlier you can benefit from good credit.

Without credit, you will have a hard time renting a car or even getting a hotel room when your vehicle breaks down. Good credit can save you significant amounts of money in the future, which enables you to save more money or even spend it on something more essential to you. 


Why is credit important?

Importance of credit history

Your credit score does more than just influence your financial aspect. More so than most other countries, a credit report is critical in the United States. Being highly capitalist, the American economy depends on leveraging credit and debt. Americans use debit and credit to get loans for houses, cars, or personal projects. Your credit even determines if you can rent in the United States.

Consider the following:

  • Your credit determines the interest rate you get on a loan. Unluckily, the worse your credit score, the more money you will pay in interest for any loan.
  • Potential employers can pull a credit report, applying it to assess your personal responsibility.
  • Landlords will check your credit reports before renting to make sure you are financially responsible.
  • Luckily, you can take steps to build and manage your credit actively to ensure that you do not spend all of your money on high-interest payments. Or, even worse, get declined for the lines of credit or loans you need.

How is a credit score calculated?

Lenders and creditors report whether you pay your bills on time to the three credit bureaus, Experian, Transunion, and Equifax. This incorporates your department store cards, credit cards, auto loans, student loans, and mortgages.

The credit bureaus, sometimes called credit reporting agencies, use this information to calculate your credit score. A credit score is a number that is centered on a proprietary, sophisticated algorithm. Originally invented by the Fair Isaac Corporation, FICO, your credit score can vary from 300 to 850. Typically the bigger your credit score, the more trustworthy you are to lend money.

As a general principle, anything at or below 600 is regarded as poor credit. A credit score that is in the range of 601 to 740 is considered to be as good credit. The best credit scores range from 741 to 850.

Creditors can buy your FICO score and credit reports from the three bureaus. Every credit reporting agency has its own credit score scale:

  • Equifax: 280 to 850
  • Experian: 360 to 840
  • TransUnion: 100 to 900

Whereas there are other scores available, these three, together with FICO, are the most widely used in determining creditworthiness. Your credit score is calculated and updated every month, even though it may be recalculated for other reasons.

The average credit score of Americans ranges from 687 to 695. The average is typically below 700, but it differs per bureau. Credit Karma has a substantial graph of their average credit score based on age range. Under data from FICO, average, and overall credit scores for all Americans are improving year over year. This could be maybe because of better education about credit. It could also mean the score ranges requires adjusting.

Note that lenders also consider your ability to repay the debt by contrasting the amount of your total monthly loan remittances against your monthly income using debt to income ratios.

What makes up your credit score ?

The first step to building a credit report is understanding what goes into your credit score. The FICO score, which is the most commonly used credit scoring model, applies a weighted model. This means that some factors are more significant than others. Below are the factors that determine your credit score.

  • If you pay all your bills on time and in full monthly or not, this influences approximately 35 percent of your credit score.
  • The ratio of the amounts owed to your income-This will comprise around 30 percent of your credit score.
  • The period in which you have had a credit history-This influences approximately 15 percent of the credit score
  • The frequency in which inquiries are made against your credit profit and the number of new accounts you have included in your profile in a short period.
  • The type of credit accounts you are using and how often you use the accounts. This will affect approximately 10 percent of your credit score. This will attribute to around 10 percent of your credit score.

In other words, this means that paying debt on time is the most significant thing you can do to increase your credit score. Then keep your balance low compared with your credit limits. That is, you do not want to have a balance of more than fifty percent of a credit card’s limit, and less is better.

Your credit report will lengthen naturally with time, and you can avoid bad scores on your credit by not getting new credit when you do not need it. With those steps, you will require a plan to build your credit. Here is what you can do to start building your credit.


How can I get credit for under 21?

How to improve student credit score?

In this segment, we will look at ways that you can use to build credit. 

Build credit with student loans

As a student, there is a high chance that you will be responsible for student loans. A student loan is regarded as an installment loan, which can be useful when it comes to how it influences your credit report. In general, revolving credit accounts impacts your credit score more severely than installment loans.

However, paying your student loans late will affect your credit score, so you should always pay your student loans after deferment. In case you do not have enough money to make payments, look into alternative repayment options before you miss a payment. Talk to your creditor about which option will work best for your needs.

Consider student credit cards to build a credit score

College students can easily access credit cards. The best way to manage credit while you are a student is to have a joint account with your parents or any other family members and learn responsible credit habits. The responsible utilization of credit cards can promote your credit score and improve your chances of getting the car and home loans you need after graduation. However, abusing credit cards and enabling credit card debt to get out of control can create a financial disaster that will take many years to clear up.

Control credit Inquiries

When you have just finished college, it can be challenging to limit the number of inquiries against your credit profile. Apartment landlords, potential employers, utilities, and insurance companies will inquire about your credit as you develop the things you need for your life.

The essential thing to remember is to manage the elements of these credit inquiries that you do have control over. In case you join a credit reporting company, you can monitor your credit and limit the number of inquiries that count against you.

Paying rent may help build a credit score

The chances are that you are not going to move straight from college into homeownership. And since you are still building your credit score, that is not a bad thing. Try to have your rent reported in your credit score. Experian and TransUnion have a way for renters to incorporate on-time payments in their credit reports.

As long as you have a good report of on-time rent payments, those payments can assist in boosting your credit score. Even though you are still in college and paying rent, you might be able to include your on-time remittance to your credit report to boost your score.

Pay your bills on time

Note that any late payments can harm your credit score and take months to recover. Whether you have to note all your due dates on the calendar, utilize a tool for automating your finances so that you pay your bills on time.

Building credit via the help of parents and family

This technique is a combination of other options. Your family and parents can help you build credit in several ways. Begin by asking them to add you to their lines of credit as an authorized user. This is a more straightforward way to get access to a credit card, and you will build your credit when using the card.

Just use the card wisely and pay it off every month. This will improve your credit score. Similarly, your family can co-sign loans that would otherwise be difficult for you to get. In other words, this means they will pay your loan.

By doing this, you can get a loan and start building credit by paying it off. Note that using this option may pose a threat to the cosigner since they are financially responsible if you do not pay your bills.

Use other loans to build your credit

Student loans are not the only kind of loan that can help you build your credit. Typically, all your loans build credit. So in case, you need a loan for a personal project, car, house, or anything else, then you will have to build your credit.

The problem with these other kinds of loans is that they depend on credit scores for approval more so than student loans. The problem with these other kinds of loans is that they depend on credit scores for approval more so than student loans. So in case you do not have any credit, it may be challenging to get these types of loans.

But in case you can secure a loan, even a small one, then you will start working on your credit score so that any future lending will be easy.

Build credit with credit cards

As a student, there are two types of credit cards you should be concerned about: unsecured and secured credit cards.

  • Building credit with an unsecured card

An unsecured credit card is a normal credit card and is not secured to any particular bank account. Whereas it might not have an annual charge, it usually provides you benefits in exchange for this fee. It is advisable to obtain an unsecured credit card before getting a secured one. In case you are approved for an unsecured card, you will not have to pay the charges and high-interest charges of a secured card.

To get an unsecured credit card, you either can reply to targeted offers you may get in the mail or get offers online. Note that pre-accepted offers frequently give you good deals. Moreover, you can check with your bank to see if they have a credit card you can apply for, whether online or in person. Your bank has a high chance of approving you since you already bank with them.

Each of the major creditors will have cards that you can apply for, and even assist you in finding offers that might work for you. It is of importance to understand the difference between a processor and a bank.

Credit processors include MasterCard, Visa, American Express, and Discover. The main credit card issuers are also major banks, in the situation of American Express, Discover, also processors. These banks just happen to center more on their credit cards versus their banking.

The major credit card issuers include:

  • Capital one
  • American Express
  • Discover
  • Citibank
  • Chase Bank
  • How to build credit with a secured card?

A secured card is a credit card with a minimum credit limit. It is secured or tied to a bank account with a balance in it that backs up your credit. It’s intended to help you build or rebuild your credit.

It is secured to one of your bank accounts in the event you use it irresponsibly; in that situation, the lender has the money it lent you and can get its investment back. To get a secured credit card, you can use the same method as an unsecured card but filtering for secured cards. You may or may not find a targeted offer. However, you can get them at most major banks.


How to check your credit score?

You can appeal a free copy of your credit report from all three major credit reporting agencies per year. You should beware of look-alike sites that might charge you for copies of your credit reports. 

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