Good Credit, Bad Credit: 3 Ways Credit Scores Can Affect Students
contributed by Jenna Wilson
For better or for worse, we live in a credit-driven economy.
As such, your credit score is one of the most important numbers connected to your finances. That one number can affect large purchases, among many other problems. Few people realize that a bad credit score can also hold back a career before it even starts.
It’s your right to access your credit report for free once a year in order to check your credit score. If your credit score falls below 650, students may experience financial and professional setbacks.
While ‘having good credit’ seems like a no-brainer, here are three specific ways good credit benefits you.
1. Better Interest Rates
The most obvious way a poor credit score can have a negative impact is by limiting your ability to get a loan and open lines of credit. When a loan is approved the interest rate paid is largely based on creditworthiness. A low credit score can end up costing a person thousands in additional interest.
Paying for law school can easily cost $50,000 or more in most states. Going to medical school costs at least $100,000 in tuition alone. The average medical student takes out nearly $165,000 in student loans. It’s the equivalent of purchasing a home in many cities. Without good credit, some students would never be able to become a doctor.
Many people need a little financial assistance just to earn their bachelor’s degree, which averages out to $9,650 a year in tuition and fees for in-state students at a public college. Without student loans, you may have to rely on more expensive resources like credit cards.
Getting a home loan can prove to be equally difficult for those who have bad credit. At such high loan amounts, even a slight increase in the interest rate can dramatically change the monthly expenses. You’ll also have to save much more due to higher down payment requirements. The barrier of entry for homeownership is lower for those who have excellent credit and pose less of a risk in the eyes of lenders.
For many students, a car purchase is the first experience with taking out a loan. Typically, auto dealers are more lenient with credit score than banks, but the expense is higher interest rates and longer terms that increase the total cost. Having to go through a dealer can also increase the price paid for the vehicle compared to buying directly from the seller using a secured personal loan.
If you’ve never used credit before and have a very limited credit history you may have to lease a vehicle before you can buy one. Use it as an opportunity to build your credit score by making sure to make every payment on time.
2. More Options for Buying, Renting, and Leasing
If you’re a renter your credit score can still affect your living situation. Landlord and property managers run credit report checks as a part of the background check for the same reason lenders do. They want to see how consistent you are at making monthly payments.
Typically, landlords require that applicants have a fair to excellent credit score. That would include scores ranging from 650-850. Without a fair credit score, your housing options could be limited.
3. Credit Can be Part of a Student’s ‘Resume’
Poor credit indirectly hurts a student’s career by making college less affordable. However, being able to take out student loans for college isn’t the only way your credit score can affect your career.
Many employers run a credit check on job applicants. Any position that will require security clearance will include a review of your credit report. Jobs that are financially-related also typically include a credit check. A poor credit score can indicate financial stress or past issues managing money, which is considered a risk. On the opposite end of the spectrum, applicants with excellent credit are, for better or worse, seen as responsible and reliable.
Our credit scores come into play throughout our adult lives. By treating their credit use as they would the college admissions preparation and testing, students can enjoy more flexibility and reduced costs after graduation.
image attribution Flickr user tulanepublicrelations