College is an exciting time. For many students, it’s their first prolonged period away from home. Even for college students living at home and attending school, it’s a firm step on the path toward independence and adult responsibilities. One of the responsibilities young people must master is financial literacy, and understanding credit scores is a critical component of that.

Understanding Credit Scores and Their Importance

A credit score is a numerical summation of an individual’s financial responsibility and risk. The lower the score, the more risk an individual represents. The higher the score, the less risk they represent.

With the FICO model, they range from 300 at the low end to 850 at the high end.

Credit scores do more than act as risk barometers, though. They dictate the interest rate for things like auto and home loans. In some cases, they can prevent borrowers from accessing funds at all.

They play a role in virtually every aspect of modern life, too – from buying a car to getting a job and even opening accounts with local utility providers.

Breaking Down Scoring Methods

 Several different credit scoring methods are used today. The most common is FICO, which is named after the Fair Isaac Corporation.

The others include Vantage (primarily used in the auto financing industry), TransRisk (TransUnion’s proprietary system), Experian’s National Equivalency Score, Credit Xpert Credit Score, CE Credit Score, and Insurance Score (used strictly for insurance purposes to determine customer risk levels).

However, FICO is the method that college students need to pay the most attention to, as it will have the largest impact on their day-to-day life during college.

Breaking Down Scoring

 All credit scoring methods break down an individual’s financial life into different segments. Each segment then affects a college student’s score.

Since FICO is the most frequently used, its breakdown is highlighted below.

  • Payment History – The FICO method puts a lot of weight on payment history. College students who get behind on any payment in their name (school loans, car payments, etc.) will notice their score drop. That’s because payment history accounts for 35% of their credit score. It’s also important to point out that paying early bumps a score higher than paying on time. Paying late drops the score.
  • Outstanding Debt – The US financial system today is predicated on something of a catch-22. That is, to be considered a good credit risk, most college students need to have some debt. However, to accumulate debt, they must be approved by creditors who want to see existing debt and credit history. In fact, 30% of a college student’s credit score hinges on their outstanding debt (credit cards, loans, etc.). However, having too much debt, even if it’s current, can reduce a credit score.
  • Length of Time – The amount of time a college student has had credit is yet another factor in the FICO method. The longer a student has been borrowing, the better the score will be, assuming that payments have been on time and there are no other issues. This accounts for 15% of the score.
  • New Credit – While existing credit is important to a good credit score, so is new credit. A full 10% of anyone’s score is based on new accounts. However, too many new accounts in a short time, as well as too many inquiries in a short span, will drop the score.
  • Variety – Creditors want to see that a borrower has experience with multiple types of financial tools, and this accounts for 10% of the FICO model. A mix of loan types, credit cards, and other types will help boost scores.

The Average Score of a College Student

Unsurprisingly, college students tend to have lower than average credit scores, at around 630. The average credit score for a US citizen is just over 700.1

However, college students are at a disadvantage here because most of them have little or no credit history and generally have only a few credit accounts, mostly tied to credit cards.

How to Build Credit as a College Student

College students can benefit greatly from building their credit. With a higher credit score, students can take advantage of lower interest rates, reduce their total cost for loans of all types, and receive better offers on credit cards. How can they build credit, though?

First, all college students should check their credit and ensure that all items listed are theirs. Anything that doesn’t belong to them should be disputed.

Identity theft is rampant today and it’s always possible for someone to steal a college student’s identity and open accounts in their name.

Next, they should consider getting either a student credit card or a secured credit card that transforms into an unsecured card after a specified amount of time.

Both methods will help build credit, although the secured credit card route is the slower of the two.

College students should stay current on their payments, too. Late payments will reduce their score, but on-time payments only benefit them so much. It’s better to pay early.

Finally, students should watch their credit usage. They should keep their combined balances under 30% of their total available credit.

How Financial Literacy Programs Can Help

College students often find themselves in tough financial situations simply because they don’t know very much about how credit works. Financial literacy programs can give them a solid grounding in credit scores, calculation methods, and good financial management practices, allowing them to graduate and enter adulthood in a much stronger position.

For more information on the best practices and trends in today’s top financial literacy initiatives, see our College Administrator Financial Literacy Survey Analysis.



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