By Spencer McGuire
Are credit scores important to college students?
Short answer: yes.
But that’s not the whole story.
Behind every credit score is a more detailed set of three credit reports, according to The University of Georgia’s Mary Carlson, a professor in the Financial Planning Master’s program.
TransUnion, Equifax, and Experian are the three companies that pull a person’s financial history, and from that information, create a report about what kind of spender a person is along with a repayment history. If someone pays off the credit card debt consistently, or has a lot of unpaid debt, these companies will know about it.
None of those companies alone created the credit score, though. Together, they created myFICO, which “is essentially the aggregator” of one’s credit report information, according to Carlson.
Instead of making people dig through these more detailed credit reports, Carlson said they figured they could generate a numerical score to indicate someone’s credit status more easily.
The FICO score ranges from 300 to 850, with a higher score considered to be better relative to a lower score. Carlson pointed out that scores from other sources may go to 1,000, or only to 500, so it’s not enough to know that someone’s score is 450; knowing what each individual score means and its scale is just as necessary.
What does all of this mean for students?
It means just about everything, according to Carlson, even to places that don’t directly impact one’s score.
As students grow and graduate, they might do things like get a cell phone plan that’s separate from their parents’ account. Even though a history of paying off the phone bill each month doesn’t directly show up in the report, a company might be wary about extending a contract to someone with a low score, since “that keeps them out of hot water,” according to Carlson.
Potential employers pull scores and reports, too. They might want to check that a new hire is trustworthy around money, or maybe they want to make sure the potential employee is not a security risk.
UGA student Tatiana Abeve doesn’t have a credit card, but she’s planning on applying for one.
“I think it’s a good time to start building up your credit score because when you’re older and once you graduate and you want to like do your own thing, you’re going to need a credit score to fall back on,” she said.
Carlson pointed out “there’s a lot of students that don’t have credit,” so Abeve is not alone in that distinction. And she not said that not having a credit card isn’t necessarily bad, but it could inhibit someone from receiving another type of credit.
Carlson said staying informed about your personal situation is important when learning about credit. Carlson said the federally-run annualcreditreport.com provides free reports from the three primary credit reporting companies to keep people in the loop on their credit.
Spencer McGuire is a journalism student at the University of Georgia.