Credit in college: What to know

Knowing how your credit works is important to your financial health.

…

In college, you may feel like the only kind of report card you need to think about is your transcript. But if you want to enjoy financial success in addition to academic achievement, there’s another type of grading system you should know about: your credit score.

Your credit score is like a financial report card that indicates how creditworthy you are. Your score is a three-digit number that lenders and other financial institutions use to determine how likely you are to repay money that you borrow or owe.

Here’s what else you should know about credit in college.

Why does your credit score matter?

You may not be too concerned about your credit score right now. But how you maintain your credit is important to your overall financial health (and it takes time to rebuild bad credit if you neglect it). Your credit may be checked when you go to rent your first apartment, or take out a loan for a car.

Remember, credit scores help financial institutions determine how likely you are to repay what you owe. Meaning that when you apply for a credit card and commit to using it responsibily and making payments on time, your habits would be reflected in your credit score.

Banks and credit companies may reward people with good credit by offering them loans and lines of credit with lower interest rates than they may offer to people with weaker credit. The lower the rate, the less interest you pay the lender. If you have poor credit, you could end up with a denial of credit, a lower line of credit, or a higher interest rate — the latter may make the cost of borrowing money higher for you.

How to find your score

You can get your credit score for free from several places:

  • Your bank. Wells Fargo provides eligible customers1 free access to their FICO® Credit Score through online banking; many other banks allow customers to check their FICO® Score regularly.
  • Your credit card statement. Many lenders now offer the benefit of including your FICO® Score on your statement or within your online account portal. This is available to many eligible Wells Fargo customers.
  • Your lender. When you take out a loan, your lender may provide your score at no cost.

The difference between your score and your report

The FICO® Scores which are in use today by the vast majority of lenders fall within the 300-850 score range. A FICO® Score above 800 is considered exceptional; above 740 is very good. High scores may allow you to access the best credit card offers and interest rates available.

Your credit report is a record of your credit history and contains:

  • Your personal information, including former addresses.
  • Credit accounts and lines of credit, and the status of each.
  • Credit inquiries.
  • Any judgments against you, accounts that are in collections, or if you’ve declared bankruptcy.

You can get three reports for free annually through AnnualCreditReport.com. The reports will be from one of each of the major credit reporting agencies: Equifax, Experian, and TransUnion.

What to do if you don’t have a credit score at all

If you’ve never opened a credit card, taken out a loan, or had an institution ask a credit bureau for a copy of your credit report, you may not have a credit score at all. This is not uncommon for college students.

There are a few ways to help establish a credit history, including the following.

  • By applying for and opening a new credit card, a person with no or little credit history may not get very good terms on this credit card — such as a high annual percentage rate (APR). However, by charging small amounts and paying off the entire balance each month by the payment due date, you won’t be paying interest each month so the high APR won’t hurt your financial position.
  • Those unable to get approved for a traditional credit card may be able to open a secured credit card to help build credit history, provided the card issuer reports secured cards to the consumer reporting agency. This type of card requires a security deposit of money with the credit card company. Charges can then be made on the secured card, typically up to the amount of the security deposit.
  • With both traditional and secured credit cards, keeping balances low, paying off balances in full and on time each month, and not missing payments are important for responsible financial health management.

Learn more about why credit is important and how to build yours through the Path to Credit.