Credit scores are essential to financing some of the larger items in life. Though college students may think they're years away from buying a new home or car, many do not realize that even the smaller things in life come with a credit check--and even the smallest missed payments can make that number look disastrous. Smart college students begin building their good credit early, knowing full well the positive and negative repercussions that a bad or nonexisting credit score can have.
Function
Though most lenders know that college students will not have a tremendously long credit history, it is important to create your good credit early, which will allow you to qualify for large-ticket items such as homes and cars once you graduate. Many people make the mistake of thinking that adult life does not begin until after college. This is not true, however, since it can be difficult to lead that "adult" life without the proper credit to finance it.
Significance
Even while you're still in school, your credit score is important. Many students maintain a full course load throughout the school year, meaning that their earning potential can be limited. Because of this and the financial freedom that being in college allows, many students must obtain a credit card or two to finance everyday purchases as well as emergencies. However, to obtain a credit card with a low APR (annual percentage rate), you must have at least a short history of financial responsibility. Once that credit card is obtained, students can continue to build credit from there.
Benefits
Many students choose to live away from home and off campus for at least a year or two when they are in college. However, as in the case of the low-APR credit card, a student or group of students must show their financial responsibility to rent an apartment. This remains true once a student finishes school. Typically, once a graduate obtains his first full-time job and gains more financial independence, he will no doubt want to upgrade his quality of life. This could take the form of a larger apartment, nicer car or other luxury items. To qualify for such significant purchases, that graduate should produce a good credit score.
Features
To obtain that cushy post-graduate job that can lead to a better quality of life, many graduates find that potential employers research the credit score they accumulated while in school. Though most employers use your credit score to determine your level of responsibility, good judgment and ability to minimize your financial risk, employers within the financial, sales, investing and real estate sectors may judge it extremely harshly. This is because they are hiring you to make good financial decisions for both the firm you represent and that firm's clients. It is thought that if you cannot manage your own finances, you should not manage the finances of someone else, degree or no degree.
Prevention/Solution
Even if your credit is less than perfect, there are actions you can take, as a student, to improve your credit score. The first thing to do is obtain a copy of your credit score. Anything over 600 is usually acceptable. Consolidate and pay off any debt you currently have, giving priority to bills that are the most past due. After you've gotten these bills balanced, pay at least the minimum monthly amount due every month on every credit card. This will allow you to improve your credit score with time, hopefully resulting in a reasonably average score once you graduate.
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