What is the Ideal Credit Score for Students?

· 2 min read

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A credit score is a numerical expression of an individual’s spending and credit habits, showing his/her level of creditworthiness. Since this information is generally based on a person's history in managing his/her debt, it’s not surprising for students to have zero to little credit.

Of course, there are students who are older and have already established their credit profiles. But if you’re just in the kick-off of using credit and wanting to know what is the ideal credit score for a student like yourself, you need to know the factors that help build your credit.

Read this blog article to know more about credit scoring and how students can establish a good credit score.

Reasons Why Students Should Have Good Credit Scores

There are several reasons to build your credit while you’re still in college or graduating soon. A good credit score enables you to rent your first apartment or purchase your first car with no hassle. It’s also easier to obtain credit products, such as a personal loan or credit card (know the difference between a personal loan vs credit card), if you don’t have a bad mark on your credit profile.

Banks and lenders will look at your credit score to determine your capability of paying a loan or credit card. Your credit score can also determine the interest rates on the money you borrow from these loan or credit card providers. Yes, a good to excellent credit score allows you to obtain favorable rates, saving you a significant amount of money in the process.

So, it’s a must to improve your knowledge and skills on how to maintain a healthy credit while you’re still a student. Practice self-discipline when spending your money and learn the importance of paying your bills or debts on time.

If you have a student loan, it’s an excellent opportunity for you to establish your credit. You should ensure that you pay your student loan on time. Keep in mind when is the next payment schedule for you to avoid a late payment, which can harm your credit report.

Moreover, if your credit score is below the “good” mark, make sure to obtain a copy of your credit report to identify the factor/s that negatively affect your credit score.

Credit Scores: Good to Exceptional

Using the popular credit scoring model developed by the Fair Isaac Corporation (FICO), your credit score can range from 300 to 850. You have good credit if your score is 700 or above. Then, you have an exceptional credit score if it’s 800 or above.

Here’s a summary of the FICO scoring range if you want to get an idea where your credit score belongs.

  • 300 to 579 - Very Poor
  • 580 to 669 - Fair
  • 670 to 739 - Good
  • 740 - 779 - Very Good
  • 800 to 850 - Exceptional

Features of Your Credit Report That Determine Your Credit Score

The FICO scoring model uses an algorithm that evaluates aspects or features of your credit reports to calculate your credit score. Building or improving a healthy credit score requires you to identify the most important factors that can make or break your credit rating.

Here are five credit report features that matter significantly in the calculation of your three-digit credit score.

  • History of Payments. Your payment history is a huge factor in your credit score calculation. If you’re consistent in paying your bills, loans, or credit cards on schedule, it will reflect positively on your credit reports. However, if you have missed or late payments, your credit reports will have bad marks that can drag down your credit score.
  • Credit Utilization. The amount of revolving credit you’re presently utilizing divided by the total amount of your available revolving credit is your credit utilization ratio. It’s not easy to predict how much credit you have to use each month. However, if you’re just a newbie in obtaining a credit card, you should make sure to watch out how much of your credit limit you’re utilizing monthly. Keep your credit utilization rate below 30% to increase your chances of getting a good credit score.
  • Length of Credit History. The length of time you’re using credit is another factor that can affect your credit score. That’s why it’s advisable to obtain a credit card while you’re a college student to kick off your credit building journey.
  • New Credit. This feature represents the recent credit lines you're trying to access in the past 3 to 6 months. Having too many credit applications within this time range might suggest that you’re having financial troubles, thus lowering your credit score. So, make sure to limit your credit applications.
  • Credit Mix. Your credit profile will have various types of credit accounts. For instance, you may have a personal loan, credit card, or student loan. As a student, it’s hard to mix your credit accounts since you’re just starting. However, it’s an important aspect of your credit reports to ponder about if you want to establish good credit.

Takeaway

Now you know the importance of maintaining and building a good credit score. As a college student, you should make sure that you’re already thinking of such matters because a healthy credit allows you to obtain loans and credit cards easily and avail of favorable interest rates in the future.

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