One of the most thrilling parts about growing up is detaching yourself from any monetary support systems you may have and becoming financially independent. Learning how to do so can be quite challenging for many though. Numerous college grads and students have financial responsibilities such as rent, health insurance, auto insurance, cell phone plans and loans thrust upon them. When you’re a student already juggling classes, homework, a social life and a job, having to worry about these financial responsibilities can be exhausting.
One challenge students will have to face is the task of building good credit. Credit is an essential part of life that provides opportunity to excel and achieve financial security. Sadly, the majority of college age Americans are struggling with credit scores. The average credit score for Americans ages 18 to 24 is 630, which will give them sub-prime interest rates at best. Why is this average so low? There are quite a few factors, including:
Your FICO scored is made up of many categories and 35% of the score is based on payment history, which takes time and can’t really be sped up. According to Credit Karma there is heavy parallel between older accounts and better credit scores. Consumers who have 5 to 8 years of credit history have on average, credit scores that are 40+ points higher than those with 1 to 2 years under their belt. With college students being new to credit, they will have to be patient.
Whether it’s your local community college or a four-year university, students need their education funded. When financial aid sources aren’t able to cover the cost, students are forced to turn credit cards or high-interest loans. At times, the result is years of debt and damage to credit.
Part of becoming an adult is tackling firsts such as, renting an apartment, buying a car and applying for credit cards. Even though many students look forward to such things, having poor credit will result in higher prices and interest rates.
While in college students are immersed in higher education while preparing themselves for a future vocation. Few realize though the importance of being educated in a financial context. Thirty-five percent of Americans have never even checked their credit score and fewer understand what their score actually entails. With only 17 U.S. states require financial courses in high school as a requirement. Unless parents or other sources step in to help educate about such financial matters, many students may find themselves in tough positions when needing to make financial decisions in the future.
Many Americans seem scared to actually check their credit score, hoping that if they don’t ever look it will magically get better by itself. Students shouldn’t fear credit scores because although it takes time to build a good score, it is very possible if you start early and follow the proper steps to that lead to healthy credit. There are many resources such as credit repair firms, blogs, classes and free downloadable eBooks such as “A Student’s Guide to Credit”, which teaches students credit basics and gives strategies to build and maintain credit to help achieve personal independence. These resources are all available to help students start building credit with confidence.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.