Getting Your FICO Score Ready Before College
Preparing for college not only involves researching universities, picking your school of choice, and going through the application and acceptance process; going off to college is also about learning how to be independent. This includes responsibilities such as establishing and managing your credit.
It can be difficult knowing where to start when beginning to establish credit and figuring out which behaviors have the most effect on your score. Your FICO® score pulls information from your credit report, and is used by credit lenders to determine your creditworthiness. There are several factors that are evaluated when calculating your FICO® score:
Payment History – 35%
When you’re just starting out, you may not have much experience yet when it comes to the importance of paying back your debt on time. You must be at least 18 to be able to establish a credit account. However, responsible use of the funds in your checking account can help you learn the basics of successful financial management to prepare you for managing credit. You know that if you spend all of your money as “fun money,” such as new clothes or going out to eat, you will not have enough left over to cover your necessary expenses, such as textbooks other supplies.
Amount You Owe – 30%
When you’re first approved for a credit card, it can be tempting to rack up a bunch of fun purchases with your newly established credit limit. But be careful to avoid wiping out all of your available credit, as this reflects irresponsible financial behavior to lenders. A good rule of thumb is to only use up to around 30% of your total available credit. This is known as your credit utilization ratio, or your debt-to-credit ratio.
Length of Credit History – 15%
Since you are not able to apply for credit until you are 18 or older, you likely don’t have a very extensive credit history yet. However, this is still a significant factor in determining your creditworthiness, so it can be beneficial to establish your credit history sooner rather than later. This will help provide a foundation for credit usage for your future credit needs. Having a decent credit history can make it easier to be approved for loans.
Making your first footprint in the credit world can seem intimidating. It’s okay to ask for help and ease your way into it if you have that option available to you. For example, if your parents purchased your car and took out a loan to pay for it, consider asking them to add you to the loan account. Once you are associated with the account, as long as they continue to make regular on-time payments, your credit score will be gradually bolstered with each payment.
New Credit – 10%
Any new credit account you apply for, such as a credit card, will enter this category. Too many new accounts, especially opened too close together, can damage your score. Make sure you only apply for the credit you need, and – most importantly – can manage.
Types of Credit in Use – 10%
Any type of credit account you currently have would enter this category. This includes credit cards from your financial institution or another credit lender, like a retail store credit card, as well as any loans, such a car loan or student loans. While having a variety of credit types can have a positive impact on your score, there is no need to apply for credit you don’t need in an effort to improve this aspect of your score calculation, since this is a relatively small factor.
The earlier you start planting the seeds for good credit usage, the sooner your score will start growing. Beginning to use credit early on will give you a more established payment history and longer credit history. A good credit score is important not only when it comes time to make large purchases such as a car or a house; your score is also a reflection of responsible behavior that many organizations will consider when evaluating you, such as insurers, employers, and even renters when you make the move from campus dorms to an apartment or house.
FICO® Scores are used by over 90% of lenders to make credit decisions. Lenders may have already looked at your FICO® score, so you should be keeping an eye on it too, especially before applying for new credit. Knowledge is power, so it’s good to know your score and know where you stand credit-wise. Eligible members are able to view their FICO® Score for free within Digital Banking. Keeping an eye on your score can also help you stay on top of preventing fraud. By constantly monitoring your score and your account activity, you’ll easily be able to notice anything out of the ordinary so you can keep your accounts safe and protected.
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