Why Are Credit Reports Important to College Students?

College students are so inept at managing credit that the government had to step in and severely restrict their access to credit cards with the CARD Act in February 2010. Credit reports and scores are vital to college students because developing good habits during your youth will likely lead to better financial decisions in the future.

Potential

A good credit score and clean credit report will help a student obtain big-ticket items like a house and car after college. The average high school senior, however, scored just 57 percent on a financial literacy test given in 1999 by the Consumer Federation of America. Students would have scored even worse if the test had questions that related to situations they could expect to encounter in the real world. Learning about credit early can avoid mistakes, such as paying bills late.

Viewing Credit Report

Looking at a credit report and score correlates to a better understanding of how credit works and affects a person's life. Sixty-two percent of people who check their score know that landlords often run credit checks, much better than the overall average of 54 percent, according to the Consumer Federation of America. More people checking their score may have also lead to an improvement in financial literacy among Americans between 2007 and 2008.

Other Benefits

Students who understand how credit works will probably show better spending behavior and avoid debt problems. The average student graduates with $1,000 in credit card debt and 55 percent of those students fear that they cannot pay it off, according to Iowa State University. This debt could pile up and stress a young graduate. Spending $1,000 freshman on a card with 20 percent interest, for example, will take six years to pay off and the interest charges will almost match the original balance when making minimum payments only.

Tip

Starting a credit profile in college benefits the student in the long run, so parents might consider cosigning a card with a low limit just in case they have to bail out the student. Students should read their contracts so they know when the teaser rate ends and interest charges start applying to any balance. Credit cards become dormant if the account holder does not use them for several months, so have the student put a small charge on the card each month, such as a phone bill, and pay it off before the grace period ends.