College is a challenging time when you get used to living independently and balancing a lot of new obligations. Between keeping up with your classes, participating in college life, side-hustling in delivery, freelancing in an essay writing service, and having some sleep (that’s negotiable), it’s too easy to forget your financial obligations… before your future self.
You thought you could just live a little, accumulate student debt, and let a later, successfully employed version of you deal with the mess you’ve created? That’s not smart. Or nice to yourself.
You see, you will want to get a car to commute, a mortgage to get on the property ladder, or a loan to launch a new business. And odds are high that you are actively crippling your future chances to get all that. How? By not taking care of your credit score. It’s simple: better credit score – better opportunities when you graduate into the big real world. There is no guarantee that you will get a job straight out of college, so it’s wise to begin building your safety net now. In fact, even if you want to start working or move into a new apartment, they might be interested in your credit score before making an offer.
What’s a credit score?
A credit score is a number ranging from 300 to 850, showing a person’s prospect of repaying a debt. It is calculated based on a credit report and varies depending on which provider crunches the numbers. Two of the most popular are FICO and VantageScore. However, some creditors have their own custom credit scoring programs that account for industry-specific variables.
Anyway, a score of 300 to 579 (or even 600) is generally considered a bad credit score. You should aim at 600 to 670 to have a “fair score,” allowing you to access loans. To be ranked as “good,” your score must fall somewhere in the range of 670 to 739, opening up more opportunities and favorable conditions. Upwards of 800 is considered excellent. You get the idea: the higher, the better.
First of all, you should check your credit score. There are companies and apps that can pull the available financial information about you and show how prospective lenders will see you in figures and risks. Experian, Equifax, TransUnion, Tally, Credit Karma, and AnnualCreditReport.com are some of the names.
Assess your credit report
Let’s suppose you’ve seen the number and didn’t like it. Don’t despair. Nothing that can’t be helped. Your task is to determine what metric affects your score the most and address it first. John Ulzheimer, a credit specialist with over 20 years of experience in the industry, calls this a “triage,” likening your poor score to a patient in the emergency room. You must find out what exactly needs immediate attention to save it. For that, you must look at the credit report.
Credit reports show a snapshot of your overall financial health and credit history from the past 7 to 10 years. Among all the details, here is what needs to be checked first and foremost:
- Payment history
- Amounts owed
- Credit history
- Credit inquiries
- Credit mix
This way, you will see what is negative on your report, dragging the score down. That’s the first step in repairing poor credit. I must warn you that it will take some time before your efforts start reflecting on the score, but as a rule, you will see some results in about six months.
Is there anything that looks wrong?
First of all, look for any inaccurate information that can lower your credit score. You might be surprised, but according to Federal Trade Commission’s study on credit report accuracy, one in four credit users had mistakes on their credit reports that potentially resulted in less favorable terms for loans
Common credit report errors include wrong personal info (name, phone number, address), incorrect account status (closed accounts reported as open, etc.), and inaccurate current balance or credit limit. You can amend your score by contacting the credit bureau and reporting an error if you’ve found one.
Also, keep an eye for any signs of fraudulent activity. By stealing your personal details, a scammer could take out loans in your name, leaving you with a nightmare of a credit file and abysmal score. If anything looks suspicious, contact a credit reporting company immediately. You can request blocking or removing fraudulent debts through one of the nationwide credit reporting companies, Equifax, Experian, or TransUnion.
Are there any late payments?
The most essential factor in your credit report is payment history. It accounts for 35% of your score. If there are any late or insufficient payments on your record, that will negatively affect the number. According to Mark Kantrowitz, a higher education and college finances expert, “Late payments can cause your credit score to drop by 50 to 100 points.”
So the best advice anyone can give is to try your best to pay utility bills and credit installments on time. I know. Staying ahead of all your bills is a hassle, but late payments sent to collections can lower your credit score. Consider setting up direct debits if you are forgetful (like me) and afraid you can miss a payment. This way, everything will be paid automatically. The only trick is keeping enough on your account to cover the charges.
Is there a history at all?
You might be one of those lucky lot living with parents. Moreover, they could be the ones footing your tuition bill and other expenses and getting back what’s theirs in gratitude, chores, and hugs. So you don’t owe anyone any money. You are as clean as the proverbial slate. That means your credit score must be perfect?
Um, not really. That’s not how credit score works. No history means no score. You have nothing to show creditors as proof of your reliability. In fact, the age of your credit history accounts for 15% of your credit score. The longer the history of consistent payments, the better. It shows your skills to plan, save, economize, and pay the money back. So if you want a good score, start building your history. How?
Credit cards are a good way to start if you do not want to take out big loans. Apply for your first credit card and start using it. It is a helpful little thing in your daily life. You don’t have to let the debt snowball – just pay the borrowed sum back at the end of the month. That will get on your file and show credit companies that you can manage debt.
Is there variety?
Money lenders love credit mix – a combination of different account types: installment, revolving, and open. This metric accounts for 10% of your score. Revolving credit is a credit that is automatically renewed as debt is paid off. A credit card is a typical example. Open credit is a pre-approved loan between a lender and a borrower. Department store credit cards and service station credit cards can serve as examples. Installment credit is a loan for a fixed amount of money where you agree to a set of monthly payments. Mortgages, auto, and student loans are typical examples. If you want to improve your credit score, mix those types of credits up.
Are there multiple applications?
An application for a credit or a loan stays on your file for six months regardless of whether you’ve actually taken out any money. Multiple applications might imply that you’ve been turned down several times, raising questions about your reliability. To avoid this, compare various credit options before applying for the one that offers the best rates instead of shooting applications at every opportunity.
Is there hopping around?
Another small detail that might affect your attractiveness to lenders is too many different addresses. There is nothing wrong with being a nomadic spirit and moving around per se. However, changing addresses too often might be seen as a sign that you will be hard to find in case things go south. Hence, higher risk. Vice versa, staying in the same place for a long time signals steadiness and reliability. This might sound a bit dated (or even retrograde), but the finances sector isn’t exactly famous for being a hotbed of innovation, you know.
These simple guidelines should keep you covered for now. Pay your bills on time, create and pay off various manageable debts, keep it steady, and you and your credit score should be fine and ready for the time of your graduation. Live long and prosper!