Understand Your Finances
5 things every college student needs to know about credit
This story is part of Money Moves, an original Chase series about how young people spend—and save—money.
For many young adults, college is their first opportunity to manage their own money. And one of their first—and most meaningful—lessons is the importance of budgeting and good credit health. Long after graduating and moving on to professional life, credit scores can be a help or hindrance, influencing everything from buying a car to getting an apartment.
With that in mind, here are five key things college-aged students need to know about credit:
1. Your credit can help (or hinder) your job search
Many people know that establishing good credit can help them get credit cards, car loan financing, or a mortgage But college students are often unaware of another primary benefit of having stellar credit: getting a leg up in the job market.
Increasingly, employers in many industries are checking the credit reports of job applicants. Job candidates with solid credit standing have an advantage over those with so-so or poor credit.
2. Blemishes on your credit can last up to seven years
It takes some time to build up credit. In fact, VantageScore lists the type and duration of credit as the second most important factor in determining scores, right behind payment history. That's one reason older consumers, who have had credit for many years, tend to have higher credit scores than students, who are just getting started.
Improving one's credit happens gradually, but financial mistakes can be instant—and long-term—credit-score killers. For example, if you're 30 days or more late in paying a bill—like a car note, rent, or a credit card—that delinquency can be reflected on your credit report for up to seven years, according to VantageScore. More severe credit issues, like bankruptcy, can also stay on your credit report for seven years.
So, try to pay all your bills on time, every month. It's easy to set up automatic payments or reminders in your phone calendars.
3. There are key ways to build credit
Some students think the only way to establish credit is by taking out loans or actively using credit cards. But that's not true.
In recent years, credit scoring companies, lenders, and even the three main credit bureaus—Equifax, Experian and TransUnion—have started using so-called "alternative" credit data, which enables college students to begin building their credit histories without borrowing money or taking out credit cards. For example, college students who are renters can have their positive apartment rental payment history reported to the credit bureaus. Third-party companies independently verify the student's on-time rent payments with a landlord. And, since payment history is the most important factor in a VantageScore credit rating, this can give them a major leg up in building a credit score.
Another way a college student can help establish credit is by "piggybacking" off his or her parent's good credit rating. Many banks allow parents to add their children as authorized users on their credit card account. The student then "inherits" part of their parent's positive payment history and credit length on a specific credit account. While piggybacking doesn't have as large an impact as a student's own credit activity, it can get them off on the right foot when it comes to building their credit.
My husband and I used the piggybacking technique with our college-age daughter, Aziza. We made her an authorized user on my credit card, which gave her the benefit of being added to a card with a spotless payment track record. Since I've had the card for many years, she also picked up my credit history.
But my daughter has never seen the card. After we added her as an authorized user, my husband and I simply had the card come to our home—and we put it in the drawer.
4. Good credit can help you save a lot of money
Another thing to remember is that an excellent credit profile translates into big savings. That's because having pristine credit saves people money in numerous ways.
With good credit, you can get the best loan rates and terms on everything from credit cards and car loans to mortgages and business loans. People with good credit may also save on other financial products, such as car insurance rates.
Over a lifetime, the savings on all these items can run in the tens or even hundreds of thousands of dollars.
5. Paying your student loans gives you a headstart
If you've taken out student loans, remember to pay on time. It's an easy way to start building good credit, which can give a headstart when it comes to borrowing for grad school—or passing a credit check for their first apartment.
Everyone knows that college can be the first step toward a good job, but with good planning and careful maintenance, it can also be a great place to learn the organizational skills you need to take care of your finances. With planning and preparation, you can graduate with the degree you need for a job, the skills you need for smart money management, and the strong credit rating you'll need for the rest of your life.
JPMorgan Chase Bank, N.A. Member FDIC
© 2019 JPMorgan Chase & Co.
Lynnette Khalfani-Cox, The Money Coach, is a Chase News contributor. Her work has appeared in The Wall Street Journal and CNBC, among other media outlets.