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If you're a student and have little credit, no credit or even bad credit, you're not alone. Credit scores are largely based on your past experience managing debt, and many students, unsurprisingly, may not have reached that point in life yet.
That's not to say some students won't already have a credit history—some are older and others may have utilized credit for something in the past. But if you're in the beginning phase of your credit journey and wondering what your credit score should look like, know that scores vary depending on several factors. Here's a closer look at credit scores among students.
What Is Considered a Good Credit Score?
Your credit scores will depend on your credit history and how you've managed past debt. FICO® Scores☉ are the most popularly used credit scores and are calculated using a unique algorithm that weighs features of your credit reports to spit out your three-digit score.
To maintain or build a good credit score, you need to make sure you know which aspects of your credit report matter most in your credit score calculation. FICO® Scores are calculated by looking at the following five features of your credit report:
- Payment history: This is the most important factor in your credit score, and missing or late payments can have a serious impact on your score. As you begin or continue to build your credit, make sure to pay all your bills on time to avoid racking up any missed payments in your credit reports.
- Credit utilization ratio: This number is calculated by dividing the total amount of balances owed on your revolving credit accounts (such as credit cards) by the total amount of all your credit limits. Utilization can be volatile from month to month, and if you are just starting out with credit, it's good to be mindful of how much of your available credit you use each month. It's recommended to keep your utilization under 30%, or under 10% for the best credit scores.
- Length of credit history: This aspect may be tough for younger students, but the age of your credit history will always have an impact on your overall scores—and the longer your history, the better. Consider getting a credit card or asking a relative to add you as an authorized user on their card to help jump-start your credit history.
- Recent activity: This refers to the amount of new credit applications you've applied for in the past three to six months. A high number of applications in a short period of time might tell a lender that you're in a dire financial situation, so consider limiting the amount of applications you send in a short period of time.
- Credit mix: These are the different types of credit accounts you have in your credit file, such as a credit card, student loan, auto loan and the like. Students may struggle in this category, as younger consumers near the beginning of their credit journey may not have experience with many different types of loans. Though credit mix makes up a smaller part of your credit score, it's still something to think about as you begin to build more credit.
Why Would a Student Want a Good Credit Score?
For students who are currently in school or planning to leave soon, having a good credit score can help you buy or lease your first car, rent your first apartment or get your first credit card—all things you may need as an emerging professional. Lenders use your credit score when considering you for new loans and also use it to determine your interest rates. People with top credit scores are often given the best interest rates on credit products and, as a result, can save tens of thousands of dollars of the course of their lives.
If you're a student and in the beginning phase of building your credit, it's important to remember that there is more to your credit than just your score. While it might be appealing to work to get the best score you can, now is a time to develop responsible habits and learn the skills needed to maintain good credit health over time.
Many students have student loans, which can be a great place to start when building responsible financial habits. Make sure you know when your first student loan payment is due, and do everything you can to make loan payments on time to avoid incurring any late payments, which will negatively impact your credit report.
If you're a student and have a poor credit score, get a free copy of your credit report to understand what's bringing your score down.
How to Start Building Credit as a Student
It's always good to start early when talking about building good credit. Many students have the advantage of time and should begin establishing credit as soon as possible so that by the time they really need credit, their score will be in a good place.
If you have no credit and need a place to start, consider becoming an authorized user on someone else's account or think about getting your own secured card to jump-start your credit history.