Let's face facts: When you're a college student, thinking about life after campus is kind of a drag. Who wants to worry about "real" adulthood when there's an exam to cram for and a party this weekend?
But the reality is that there's one post-college concern you should already be thinking about: your credit score. Not sure why it's important? Here are 5 credit score questions you should be asking right now:
1. What is a credit score?
First and foremost, it's essential to understand what your credit score actually is. Essentially, it's a three-digit number that represents your past history with handling borrowed money. Credit scores range from 300-850 — the higher your score, the better.
It's also worth mentioning that your credit score is scrutinized frequently. You'll need a good score to rent your first apartment, set up utilities and get nearly any type of loan. This is why it's critical to start building good credit as soon as you can.
2. What's the difference between my credit report and my credit score?
Your credit report is a document that lists important details about all of the credit accounts open in your name — past and present. Every month, your lenders send information to the three major credit bureaus about how you're doing with the money you've borrowed from them. For instance, if you've made a late payment, this will be communicated to the bureaus and will be noted on your credit report.
Your credit reports (you'll have one for each of the three credit bureaus) are then used to create your credit scores (again, one for each bureau, although they should be pretty similar). This is why it's essential that the information on your credit reports is accurate. You should review all three at least once per year.
3. How is my credit score determined?
It's important to know how different financial behaviors influence the final calculation of your score. The FICO credit score, which is the most widely used in the U.S., uses five broad factors to determine your score. Again, all of this information is derived from your credit report:
· Payment history (35%): Do you pay your bills on time?
· Amounts owed (30%): Do you keep the balances on your credit cards low?
· Length of credit history (15%): How long have you been using credit?
· Mix of accounts (10%): Do you have a good variety of credit accounts on your report?
· New credit inquires (10%): Are you applying for too much credit at once?
4. How long will a mistake affect my credit score?
If you're looking over the information above and are concerned that you've already made some money mistakes that could affect your score, don't panic. Negative marks won't say on your credit report forever; most drop off after seven years, and they start to have less of an impact on your score as time passes. The important thing is to correct bad credit habits and stick with good ones from here on out.
5. What can I do to start building good credit now?
The easiest way to start building good credit while you're still in college is to get a student credit card and use it responsibly. This means paying your bills on time and in full, every month, without exception. Over time, this should add up to a great score (assuming that you're not defaulting on other bills, like rent or utilities).
It's worth noting that it's not as easy as it used to be for college students to get credit cards; you'll probably need a co-signer to do so. If you can't find one, consider opting for a secured credit card. You'll have to put down an up-front deposit, but because you're accessing a credit line when you use the card, your score will start climbing with responsible use.
The takeaway: College students should start getting educated about their credit scores well before graduation. Start with the five questions above — and keep them coming!