College and Credit Score 101 – What’s a Credit Score and Why it Matters

You’re in college so that you can get your degree, and with that degree, land that dream job. Like most college students, you have a lot going on, so chances are your credit score is the last thing on your mind. 

Your credit score is important and can make things either like getting a credit card, renting an apartment with utilities in your name, and even getting your dream job, either a lot easier or a lot more difficult.

Let’s start building your credit knowledge with Credit Score 101 – what’s a credit score and why it matters.

Credit Score 101

What is a credit score:

Your credit score reflects the information found in your credit report and is used to determine your creditworthiness. Basically, it tells lenders how likely you are to default on an obligation. The higher the number, the better.

What is a good credit score:

Credit scores range from 300 to 850, and the higher the score, the better.  While no formal definition of a “good” credit score exists, generally, a minimum credit score of 680 is considered good.

Why your credit score is important:

Credit scores are used in almost every part of our lives, from credit cards and loan applications to employment opportunities. If you have a good credit score, then you will have access to more financial products, lower interest rates, and better terms.

Why it matters:

Poor credit history can impact your job search:

After spending the past four or more years studying to earn your degree, you hope to get that dream job to earn a good income. Did you know your credit history can impact your job search? 

Background checks are common when applying for jobs and oftentimes that background check includes a credit check. A study found that 25% of HR professionals use credit checks in some positions and 6% use credit checks for all positions, particularly if you are looking for a job that requires a security clearance.

While future employers can’t see your score, they CAN see your credit history which will include on time payments, how many tradelines you can and what they are, any negative marks such as collections or bankruptcy and more. 

They may not see the exact score, but if your score is low for some of these factors, your employer might see the factors on your credit check.

Why do potential employers care about your credit history?

  • Organizations run a credit background check to reduce liability for negligent hiring and decrease the chances of theft and embezzlement. If you are deep in debt, you may be more tempted to steal.
  • Prospective employers view your credit history as a reflection of your overall level of responsibility and trustworthiness.
  • If you’re being hired for a job that handles finances, if you’re not responsible with your own, your employers might think you won’t be responsible with theirs or their clients

It can impact your lending opportunities: 

Now that you’ve landed your dream job, you can think about getting a credit card, moving out on your own, or buying a new car. Before you can get any land any of these, you will need to qualify for credit.

 To qualify, you will need a good credit score to show your creditworthiness. If your score is low, or doesn’t exist, you will be given a high interest rate, which means you will pay thousands of dollars more in interest. 

What should you do now:

Here are some key steps you can take to proactively impact your credit score:

  • Get a job – do not apply for loans if you do not have a repayment plan. This prevents you from missing payments or defaulting on your loans.
  • Make a repayment plan for all your loans– How much can you afford to pay each month, what is your grace period, what are the interest rates on your student loans?
  • Pay all your bills on time every month. Pro Tip: Calendar in your due dates so you don’t miss a payment, or even better, use auto pay. 
  • Decrease your debt – If you can afford to, pay more than the minimum. A good rule of thumb is to not exceed 30% of credit available to you. 
  • Report your rent – if you are a renter, you can report your credit to the credit bureaus. Your rental tradeline will not only add much needed history to your report but your payment history. It’s the simplest way to begin building a robust credit profile. 

 

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