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6 Things College Students Need to Know About Credit Scores

The three-digit number college students are usually most familiar with is their GPA, but there’s another one that’s just as important: your credit score. Good credit is essential if you want to buy a car or a home down the road, so it’s important to start building your score as early as possible. If you’re headed off to college for the first time or you’re already a seasoned student, here are six important credit score lessons to learn.

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Credit Scores Are Different from Credit Reports

Students often think that credit scores and credit reports are the same thing, but they’re actually quite different: a credit report includes your personal information, like your work history and previous addresses, as well as a detailed breakdown of your credit use. Any accounts you have, like a credit card or student loan, are listed on your report along with your payment history. Your credit score, on the other hand, is a numerical representation of the information contained in your credit report.

Related Article: How to Really Read Your Credit Report

You Have More Than One Score

There are several different types of scores lenders can use to determine your credit-worthiness, including Beacon scores, PLUS scores and VantageScores. The FICO score, created by the Fair Isaac Corporation, is the most widely used system and is based on five specific factors: your payment history, your total debt, how long your accounts have been open, inquiries for new credit, and the types of credit you have. Keeping the different scores straight can be confusing for students, but the most important thing you need to know is that a higher score is always better.

Related: Best Credit Cards For College Students

It Can Affect Your Student Loan Eligibility

If you’re planning on borrowing money to pay for some or all of your education expenses, credit scores can impact your eligibility for certain loans. While Stafford and Perkins loans don’t require a credit check as part of the approval process, private lenders will look at your score when you apply. They also use them to determine how much you can borrow, as well as the interest rate you’ll pay. If your parents are taking out a PLUS loan to help you out, their application can be denied if they have a poor credit history.

Related Article: Pros and Cons of PLUS Loans for Parents

Bad Credit Can Impact Future Employment

Once you’re out of school and it’s time to start looking for a job, your credit history may come into play. While prospective employers can’t see your credit score, they can pull your credit report with your consent. If you’re going into a field that requires a high level of security clearance or deals with confidential financial information, you may be subject to a credit check. If you made a few missteps during your time as a student, it may give employers the impression that you’re unreliable or irresponsible, which could hurt your chances of landing a job.

Mistakes Can Come Back to Haunt You

When you’re juggling classes, studying and having a social life, it’s easy for your finances to slip through the cracks. Forgetting to pay a bill on time may not seem like a big deal, but your credit score can take a major hit. Thirty-five percent of your FICO score is based on your payment score, and even one late or missed payment can cause it to drop significantly. Not only that, the error will remain on your credit history for up to seven years, making it harder for you to get approved for loans in the future.

Related Article: 5 Ways to Repair Your Credit

There’s No Such Thing as an Easy Fix

If you’re coming out of school with a less-than-stellar credit score, it doesn’t mean you can’t improve it. It’ll just take time. Establishing a solid payment record, paying down any debt you’ve racked up and limiting your applications for new credit are the best ways to give it a boost. Credit repair companies promise to raise your score overnight for a fee but it’s possible to do it yourself and save some money. If you’re patient and diligent in your efforts, you should start to see your score turn around.

Photo credit: flickr

Rebecca Lake Rebecca Lake has been writing about the nuts and bolts of personal finance for nearly a decade. She is an expert in investing, retirement and home buying topics. Her work has been featured on The Huffington Post, Business Insider, CBS News, U.S. News & World Report and Investopedia. As a homeschooling mom of two, she's always looking for ways to make the most of every dollar.
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