10 Credit Score Myths Students Need to Know

Your credit score is a financial superpower that can open doors or slam them shut. Here’s what you need to know:

• Checking your own score doesn’t hurt it
• Student loans can help build credit if managed well
• You don’t need credit cards to build credit
• Your salary doesn’t directly impact your score
• Keeping old credit cards open can be good for your score
• Carrying a balance doesn’t help your credit
• Your grades don’t affect your credit score
• Your roommate’s credit habits can indirectly impact you
• Building credit before graduation is crucial
• Employers see a modified version of your credit report, not your score

Quick Comparison:

Focus on paying bills on time, keeping credit use low, and starting early. Your future self will thank you.

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1. Does Checking Your Credit Score Lower It?

No, checking your own credit score doesn’t lower it. It’s actually a smart move for students to keep tabs on their financial health.

Here’s the scoop:

When you check your credit score, it’s a "soft inquiry." Think of it like window shopping for your finances – look as much as you want, no harm done.

But not all credit checks are the same. Applying for a new credit card or loan? That’s a "hard inquiry." These can nudge your score down a bit:

• FICO: Up to 5 points
• VantageScore: Up to 10 points

Here’s a quick comparison:

Don’t stress about hard inquiries, though. They’re not credit score wreckers. The impact fades fast, usually within months. Plus, they only stick around on your report for two years.

So, what’s the bottom line for students? Check your score regularly. It’s like a quick health check for your finances.

Experian, a major credit bureau, says: "Checking your own credit score is considered a soft inquiry and won’t affect your credit scores."

Pro tip: Use a free credit monitoring service. Many banks and credit cards offer this perk. It’s an easy way to keep an eye on your score.

Knowing your score helps you:

1. Spot potential identity theft
2. See how your money habits affect your score
3. Know where you stand before big financial moves

Don’t let this myth stop you. Check your score, get to know it, and use that info to make smart money choices. Your future self will be glad you did.

2. How Student Loans Affect Your Credit

Student loans aren’t just about getting through college. They can shape your financial future in unexpected ways.

Student loans show up on your credit report as "installment loans." They’re part of your credit mix, which can be good. But how you handle them? That’s what really counts.

Here’s the breakdown:

The Good: Pay on time, and you’re golden. Each month you pay as agreed, you’re building a solid payment history. This is big – payment history makes up 35% of your FICO score.

The Bad: Late payments can hurt. Federal loan servicers usually wait 90 days before reporting late payments. Private lenders? They might only give you 30 days. Once reported, that late payment sticks around for seven years.

The Ugly: Default is a credit score nightmare. For federal loans, this happens after 270 days of missed payments. The fallout? Your credit score tanks, and you could face wage garnishment or lose tax refunds.

Here’s a quick look at the impact:

Nicole Straub, Senior Vice President of Discover® Student Loans, says: "My student loans can’t affect my credit score." She adds, "It’s important for consumers to understand what they’ve borrowed and to only borrow what they need."

Even small payments while in school can help. They cut the overall cost of your loan and help you build credit early.

Your student loans are more than just college funding – they’re a tool for building your financial future. Handle them well, and you’ll graduate with more than a degree. You’ll have a solid credit foundation to build on.

What can you do?

1. Set up autopay to avoid missed payments.
2. If you’re struggling, look into income-driven repayment plans for federal loans.
3. Check your credit report regularly – you get free reports annually.

3. Building Credit Without Credit Cards

Think you need a credit card to build a good credit score? Not so fast. Let’s debunk this myth.

The Truth: You can build credit without a credit card. For students worried about debt, this can be a smart move.

Here’s how to boost your score without plastic:

1. Use Your Student Loans

Those student loans? They’re not just for school. Every on-time payment helps your credit history. It’s like getting extra credit for paying your bills.

2. Become an Authorized User

This is a credit-building shortcut. Ask a parent or trusted friend with good credit to add you as an authorized user on their card. You don’t even need to use it – their good history can help your score.

3. Report Your Rent

Your rent can boost your credit. Services like Rental Kharma and RentTrack report your payments to credit bureaus. It costs money (Rental Kharma charges $25 to start and $6.95 monthly), but it might be worth it.

4. Try a Credit-Builder Loan

These loans are made for credit newbies. The money you borrow sits in a savings account while you make payments, building your credit.

5. Use Experian Boost

This free service lets you get credit for paying utilities and even Netflix. It’s an easy way to add good payment history to your credit file.

Here’s how these methods stack up:

The key? Consistency. As Freddie Huynh, former VP at Freedom Debt Relief, says: "Paying your bills is the most significant component in credit score calculation, accounting for 35% of scores."

Building credit without cards takes time, but it’s doable. Start now, and by graduation, you could have a score that gets you better rates on apartments, car loans, and more. Your future self will thank you for starting early.

4. Your Salary and Credit Score

Think a big paycheck means a great credit score? Not quite. Let’s debunk this myth.

Your salary doesn’t directly affect your credit score. Shocking, right? Many students think high income equals good credit. But here’s the truth:

Credit bureaus don’t know your income. Your credit report doesn’t show your salary, investments, or bank balances. Why? To keep things fair.

What matters is how you handle money. Here’s the breakdown:

• Paying bills on time (35% of FICO score)
• Credit use (30%)
• Credit history length (15%)
• Types of credit (10%)
• New credit applications (10%)

Notice what’s missing? Income.

But don’t trash your paycheck yet. While salary doesn’t directly impact your score, it can indirectly affect your credit:

1. More money can make bill payments easier

2. Lenders look at your debt-to-income ratio

3. Higher income might mean higher credit limits

Chase puts it this way:

"Your income doesn’t directly impact your credit scores, though how much money you make affects your ability to pay off your loans and debts, which in turn affects your credit score."

So, what should you do? Focus on these habits:

• Pay on time (use autopay if you’re forgetful)
• Keep credit use low (under 30% of limits)
• Keep old accounts open
• Use different types of credit responsibly
• Check your credit reports for errors

Good credit is about consistency, not just cash. Even with a modest income, smart money moves can build solid credit.

Heads up: If your income drops (hello, summer break), don’t freak out. Just make those minimum payments to keep your credit healthy. Your future self will be grateful.

5. Should You Close Old Credit Cards?

Think closing unused credit cards is smart? Think again. This common belief could actually hurt your credit score.

Here’s the scoop: Keeping old credit cards open can boost your credit. Why? Two main reasons:

1. Credit utilization: It’s how much of your available credit you’re using. Close a card, and your total credit limit drops. This can make your utilization ratio shoot up.
2. Credit history length: In credit, older is better. Closing your oldest card can cut your average account age.

Let’s look at some numbers:

So, never close a card? Not quite. Sometimes it makes sense, like with a high annual fee you can’t justify.

Before closing a card, ask yourself:

• Is it your oldest account? If yes, think twice.
• Does it have a high credit limit? Closing it could spike your utilization.
• Are there annual fees? If yes, and you’re not using the perks, closing might be smart.

Chase says: "Keep your oldest line of credit open and make on-time payments. This shows future lenders you can handle long-term debt."

If you do close a card, here’s a tip from SoFi: "Call your credit card company. See if you can move some available credit to another card. This helps maintain your credit utilization ratio."

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6. Monthly Credit Card Balances

Think carrying a balance on your credit card helps your score? Think again.

Here’s the deal: Keeping a balance on your credit card doesn’t boost your credit score. It can actually hurt it.

Why? It’s all about credit utilization. This makes up 30% of your FICO score. It’s the percentage of your available credit you’re using. And guess what? Lower is better.

Experian (one of the big three credit bureaus) says to keep your utilization under 30%. But the credit score champs? They only use about 7% on average.

Let’s break it down:

Carrying a balance pushes that utilization up. Plus, you’re paying interest. With average rates at 23.99% APR, a $3,000 balance means nearly $60 in interest next month alone.

Howard Dvorkin, CPA and Chairman of Debt.com, doesn’t mince words:

"Credit utilization makes up such a significant part of your score because if you’re maxing out credit cards, lenders may assume that you are living beyond your means, ultimately deeming you as a credit risk."

So what’s the smart move?

1. Pay in full each month
2. Pay early, before your statement closes
3. Use multiple cards to spread out purchases
4. Ask for higher credit limits

Your credit card company reports to bureaus monthly. That snapshot is what counts, not just your payment history.

As Louis DeNicola, a finance writer, puts it:

"Carrying a balance can be costly and unnecessary."

The takeaway? Ditch those balances. Your credit score (and your wallet) will love you for it.

7. Grades and Credit Scores

Your GPA and credit score might seem unrelated, but they’re more alike than you’d think. Both numbers give a snapshot of your performance – one academic, one financial.

Your credit score is basically your money management GPA. But here’s the thing: it sticks around long after you’ve forgotten your college grades.

Let’s compare:

• GPA: Shows how well you did in school (300-4.0 scale)
• Credit Score: Shows how well you handle money (300-850 scale)

Both matter, but your credit score has a bigger impact on your life after college. Here’s why:

It affects your ability to get loans, the interest rates you’ll pay, and even your job prospects in some fields. A good score (720+) can make life a lot easier.

As WTOP News puts it:

"A high GPA might open the door to academic opportunities, but a high credit score will keep more cash in your wallet."

Unlike your GPA, your credit score isn’t fixed. It changes based on how you manage your money. The good news? You have a lot of control over it.

Want to boost your "financial GPA"? Try these:

1. Pay bills on time
2. Keep credit card balances low
3. Don’t apply for too much credit at once
4. Check your credit report yearly

Building good credit takes time, so start now. By graduation, you could have a score that opens doors and saves you money.

Your GPA might not matter much after college, but your credit score will follow you for years. Treat it like your most important class – your financial future depends on it.

8. Your Roommate’s Credit and You

Your roommate’s credit score might seem irrelevant to you, but it can actually impact your financial health. While your credit scores aren’t directly linked, sharing financial responsibilities can affect your credit in unexpected ways.

How Your Roommate Can Impact Your Credit

Your roommate’s credit score won’t appear on your credit report. But their financial habits can still cause problems:

• If utilities are in your name and they don’t pay their share, you’re responsible. Late payments can hurt your credit score.
• Most landlords require all tenants to sign the lease. If your roommate leaves, you’re on the hook for the full rent.

James Jones, Head of Consumer Affairs at Experian, points out:

"If you’ve taken out a joint bank account with people you live with, to make it easier to pay the bills. If that bank account goes overdrawn because of the actions of one of the account holders, then obviously that’s going to reflect badly on you."

Protecting Your Credit

Here’s how to safeguard your credit when living with roommates:

1. Screen potential roommates carefully. Ask for references and consider sharing credit scores.
2. Use a roommate agreement that spells out bill responsibilities and consequences for non-payment.
3. Keep your finances separate if possible. If you must share accounts, watch them like a hawk.
4. Guard your financial documents and personal information.
5. Keep an eye on rent and utility payments, even when it’s not your turn to pay.

If Things Go South

If your roommate’s actions have hurt your credit, don’t panic. Take these steps:

1. Talk to your landlord about your options.
2. Keep records of all payments and attempts to communicate with your roommate.
3. Consider a "financial disassociation" if you’ve shared accounts. James Jones advises:

"The way to fix this is by contacting the main credit reference agencies – Experian, Equifax and TransUnion – going onto their websites, to the contact section and asking for what we call a ‘financial disassociation.’"

The Upside

Living with a responsible roommate can actually help your credit. Some services now report rent payments to credit bureaus. A TransUnion study in February 2022 found only 15% of renters had their payments reported. If you’re both reliable, this could give your scores a boost.

9. Why Credit Matters Before Graduation

Many students don’t think about their credit score while in college. But this three-digit number can seriously impact your life after you graduate. Let’s dive into why you should care about your credit before you toss that cap.

Job Prospects

Believe it or not, your credit can affect whether you land a job. A survey found that 51% of U.S. organizations check credit or financial backgrounds when hiring. They can’t see your actual score, but they can peek at your credit report.

Rod Griffin from Experian puts it this way:

"A pre-employment credit check can help a prospective employer verify an applicant’s identity, gauge an applicant’s experience and ability in managing debt and paying bills, and assess a candidate’s overall financial reliability."

Renting a Place

Looking for a sweet pad after graduation? Landlords often check credit reports. Bad credit could mean you’ll pay higher deposits or even get turned down.

Loans and Interest Rates

Your credit score is a big deal when it comes to loans and interest rates. This matters if you want to buy a car or go to grad school. Better credit can save you serious cash.

Check out how your credit score affects a $20,000 5-year auto loan:

See that? Good credit could save you over $4,600 in interest. That’s a lot of pizza money.

Building Credit Takes Time

Your credit score factors in how long you’ve had credit. Starting in college gives you a head start. John Ulzheimer, a credit expert, says:

"Credit reports indicate whether or not you’re responsible. And, they also indicate if you’re in financial distress. These are attributes that are important to employers."

What Can You Do?

1. Get a student credit card or become an authorized user on your parents’ card.
2. Pay your bills on time. Set up auto-pay if you’re forgetful.
3. Use less than 30% of your available credit.
4. Check your credit report for mistakes. You can get a free report once a year from each major credit bureau.

10. What Employers See in Credit Reports

Think employers can see your credit score during background checks? Think again.

Here’s the deal: Employers CAN’T see your credit score. They get a modified version of your credit report, and only if you say it’s okay in writing.

So what do they actually see? Rod Griffin from Experian explains:

"A pre-employment credit check can help a prospective employer verify an applicant’s identity, gauge an applicant’s experience and ability in managing debt and paying bills, and assess a candidate’s overall financial reliability."

Let’s break it down:

Why do they care? It’s about trust and responsibility. Companies want to know you can handle money and sensitive data.

Get this: 51% of U.S. organizations include credit checks in their background screenings. That’s a big deal.

Want to be ready for an employer credit check? Here’s how:

1. Check your own credit report first. You get one free report annually from each major bureau at annualcreditreport.com.
2. Pay your bills on time.
3. Keep your credit use under 30%.
4. Be ready to explain any issues on your report.

Good news: employer credit checks won’t hurt your credit score. But they might affect your job chances if there are problems.

John Ulzheimer, a financial expert, puts it this way:

"Credit reports indicate whether or not you’re responsible… And, they also indicate if you’re in financial distress. These are attributes that are important to employers."

So, keep your credit in check. It might just help you land that dream job.

Conclusion

Building credit in college isn’t just about grades – it’s about setting up your financial future. Let’s recap what we’ve learned:

Your credit score is a big deal. It’s not just a number; it’s your financial ID that can impact your ability to rent apartments, buy cars, and even land jobs. Did you know 51% of U.S. companies check credit histories when hiring?

You don’t need to carry a balance to build credit. In fact, paying off your full balance each month is the way to go. It keeps your credit utilization low and saves you from interest charges – which average a hefty 15%!

Checking your own credit score? Go for it. It won’t hurt your score. It’s a soft inquiry, so check regularly to catch errors and track progress.

Rod Griffin from Experian says:

"A pre-employment credit check can help a prospective employer verify an applicant’s identity, gauge an applicant’s experience and ability in managing debt and paying bills, and assess a candidate’s overall financial reliability."

Watch out for shared finances with roommates. While your scores aren’t directly linked, shared responsibilities can impact your credit. Be careful about co-signing leases or sharing utility accounts.

Building credit takes time, but you’ve got options:

• Get a student credit card
• Become an authorized user on a parent’s card
• Use a secured credit card
• Look into credit-builder loans
• Report rent payments through services like Rental Kharma

Your FICO score looks at payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Focus on these areas to boost your score.

One last thing: don’t close old accounts thinking it’ll help your score. It can actually hurt by upping your credit utilization ratio and shortening your credit history.

FAQs

What are the 5 factors that affect your credit score?

Your credit score isn’t a mystery. It’s based on five key factors. Here’s what you need to know:

1. Payment History (35%)

This is the big one. Pay your bills on time, every time. Even one late payment can ding your score.

2. Amounts Owed (30%)

Also called credit utilization. Keep your balances low – aim for less than 30% of your credit limits.

3. Length of Credit History (15%)

Older accounts? That’s good. Don’t close old credit cards, even if you rarely use them.

4. Credit Mix (10%)

Having different types of credit (cards, loans, etc.) can boost your score. It shows you can handle various credit types.

5. New Credit (10%)

Opening several new accounts quickly can hurt your score. Each application usually means a hard inquiry on your report.

Rod Griffin from Experian puts it this way:

"A pre-employment credit check can help a prospective employer verify an applicant’s identity, gauge an applicant’s experience and ability in managing debt and paying bills, and assess a candidate’s overall financial reliability."

Want to boost your score? Focus on paying bills on time and keeping your credit use low. Don’t open too many new accounts at once. Building good credit takes time, but it’s worth it. You’ll get better loan terms and more financial opportunities in the long run.

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