Your Credit Score: After College, It's the One Grade That Matters Most

Understanding Your Credit Score
After the last exams are completed and final papers are handed in, college seniors breathe a sigh of relief, thinking their futures will no longer be dictated by grades and numbers. But they're wrong. Walking the stage at graduation and into the "real world" leads to the time when you start being evaluated on a far more critical number than your cumulative GPA -- your credit score.

From the moment you establish your first line of credit, America's three major credit bureaus -- Equifax, Experian and TransUnion -- are tracking you. For many college students, this starts the moment they take on a student loan. Others may start with a credit card. Regardless, it's important for students to start building their credit history well before graduation -- and it's important to take it seriously, even early on.

"Your credit report and credit scores can play a part in renting an apartment, getting a cell phone and buying a car," says Rod Griffin, Experian's director of public education. "Utility companies may charge you a lower security deposit if you have good credit scores. So having good credit can save you money."

How Much Can Good Credit Save You?

Let's consider this hypothetical scenario:

Susie, Brad and Oscar all graduated from college together.

Susie secured a credit card in her freshman year. She never carried a balance, nor did she max out the card. Susie now has a credit score of 740.

Brad waited until his junior year to get a credit card, and was late paying three bills during the first few months. He paid off his balance and started paying on time and in full each month. Brad has a credit score of 690.

Your credit report carries more weight than your credit scores.

Oscar also got a credit card his freshman year, but he didn't start using it until his sophomore year. He proceeded to get himself into $3,000 of consumer debt and pays only the minimum due each month. His credit score is 570.

Now, each is in the market to buy a $20,000 car with a 36-month auto loan.

According to FICO, Susie would have a monthly payment of $585. Brad wouldn't be too far behind with $598. But poor Oscar would owe $713 a month.

Because of her fiscally responsible behavior, Susie will spend $1,536 less than Oscar over the course of a year, and $4,608 less overall for her car.

Your Credit Report Trumps Your Credit Score

Recent college graduates might focus on their scores (blame all those years of being graded on everything), but your credit report carries more weight than your credit scores.

To put this in perspective, Griffin likens credit reports and credit scores to homework assignments. A student is responsible for the content of her homework. Once her paper is handed in, her teacher will examine it, determine its quality, and assign a correlating letter grade. It's up to the student to improve the quality of her paper in order to receive a higher score, much like improving your reported credit history will lead to a better credit score.

Student Loans Help Build Credit History, but Mistakes Will Haunt You

"Student loans are considered installment loans, and paying these on time can help your credit score," says Shannon Ryan, CFP, wealth adviser and author of "The Heavy Purse." "Credit card debt and having several credit cards open may negatively affect your credit score," she says. "And if you've been late on payment or defaulted on a card, your scores will fall fast."

A money mistake can stay on your report for 10 years, especially if you're misusing a credit card. For recent college graduates, those 10 years could affect mortgage rates, the ability to rent an apartment and the price of car insurance.

According to Griffin, credit card debt is one of the most important factors in the bureaus' determination of your credit score. The way you use your credit cards offers insights into your borrowing and credit management decisions more than installment loans do.

Recent college grads -- and anyone else using plastic -- can help their credit reports and credit scores by paying off their bills in full each month and by keeping utilization rates low. "Utilization" is the ratio of a card's balance to its credit limit ("what you have borrowed" divided by "what you can borrow"). The key is to keep your balance under 30 percent of your credit limit.

Unfortunately, it isn't just landlords, banks and car dealerships that care about your credit report.

Your Credit Report Can Affect Your Job Opportunities

"Many employers are running credit reports during the interview process," Ryan says. "It's an important indicator of how you handle responsibility. In several fields, if you have a poor credit report, it will knock you out of the running for a position."

While credit reports help potential employers gauge your level of responsibility, they also serve another purpose for hiring managers.

"Credit reports are also used to help verify a person's identity by comparing it to the information provided by the employee in their application," Griffin says. "If the identifying information in the application matches that in the credit report, there's a stronger likelihood you are who you claim to be. That's important for jobs that involve high security or high risk responsibility."

Griffin also points out that a prospective employer can't run a credit report without your written consent, so always be sure to read the fine print of anything you sign during the job application process.

What Now?

We should all be checking our credit reports annually (and for free) to monitor for fraud and to analyze our fiscal health. You can obtain reports from all three major credit bureaus or from a secondary site like AnnualCreditReport.com. Other ways of obtaining your credit scores often come with a fee. CreditKarma is one of the few that offers free credit scores, however, it only receives credit reports from TransUnion.

Ultimately, your credit history will affect almost every major financial decision in your life. The better your report, the more money you'll keep in your pocket.

Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She's also the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. Popular posts include:

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December 12 2013 at 11:34 PM Report abuse rate up rate down Reply
TINKDAY

Interesting that credit scores mean so much now after what the crooks that run our government, banks, wall street, insurance companies and far to many of our other corporations did to this economy. Trillions of dollars lost , tens of millions of good paying jobs lost and who has to pay for this , the people that caused this, no,the SEC that has always failed at their appointed job, no, the bond rating agencies that committed so much accounting fraud, no, the politicians that protected these people, no, all these people actually saw their wealth grow. Who got left holding the bag is everybody else and we continue to lose, so now to add misery on to misery we pay higher prices for bad credit , because we lost jobs and everything else that goes along with job loss, that was caused by the rich and famous. When will the people of this country wake up and fire every democrat and republican holding office and than start some degree of honesty back in to a system that has become so corrupt and self serving.

December 12 2013 at 7:36 PM Report abuse rate up rate down Reply
toosmart4u

You can thank the republicans for sending the jobs overseas. Greed has taken a hold of the republicans. They have money but they want more and are taking it from the labor force and the poor. Only thing we Americans can do is to buy American, that way we will put Americans back to work. Your big money machine of the GOP will not.

December 12 2013 at 1:00 AM Report abuse -1 rate up rate down Reply
Iselin007

Should of read read the AOL jobs report from Indeed on Woodbridge patch.com

Where do you think the people go when their no longer counted as unemployed? The credit mess is coming. Plenty of people not in the labor force like over 91 million. Only 10.9 million unemployed, hey don't bet on it!

December 11 2013 at 3:48 PM Report abuse rate up rate down Reply
Iselin007

Run for political gov. positions this way you can still amass a lucractive pension you won't find in the real world.

December 11 2013 at 3:24 PM Report abuse +1 rate up rate down Reply
Iselin007

The outsourcing made sure sure wages and opportunities would shrink. They can import people to fill their staff needs so all that school debt was to keep the teachers safe from facing the same end. Go out for shopping carts anyone?

December 11 2013 at 3:18 PM Report abuse +1 rate up rate down Reply
theycallmeroy3

Young people definitely deserve all the information one can offer concerning this important and often painful subject. Hopefully the banking and finance sector of our economy steps up here.

Because its the young people using pay day loans and using questionable means to secure unavailable credit.
Not always crazy about credit cards solicited to our youth as an only way to build credit for composite scores.
Banks can and should offer programs designed for their future customers in mind. Like a beginner program, where young people can pay up front for secured credit cards which qualify in reporting to the three main credit agencies.

An offered app. ( which covers issues and solution for youth finances) could be standard on cell phones, i-pads. Between student loans and healthcare insurance, we certainly owe them that. Make and design the app, Erin. Then VC it. See how Shark Tank likes that.

December 11 2013 at 2:14 PM Report abuse rate up rate down Reply
1 reply to theycallmeroy3's comment
Iselin007

There is no clear data to help people choose a school or career that will actually be available to them. They go to school on promises that the education has plenty of opportunites only to find there are few takers in the Global New World Order.

Hey your young you can still unload trucks but after 50 you'll be pushed toward Door Greeter.

December 11 2013 at 3:55 PM Report abuse rate up rate down Reply
jrb359

After graduation, pay back your student loan, pay down the national debt, and later sign up for obamacare! Your elected officials are waiting. Next time you might want to consider NOT voting for a Democrat!

December 11 2013 at 1:55 PM Report abuse -1 rate up rate down Reply
1 reply to jrb359's comment
Iselin007

If they hadn't faced the worst job market in years made worst by imported workers people would not be forced into no jobs or low wages. What do they do now?

The credit lenders had no problem being part of the banks that helped to create the housing crisis ect.

December 11 2013 at 3:31 PM Report abuse -2 rate up rate down Reply
3 replies to Iselin007's comment