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What’s in a Score?

PSECU's Sara Weiser details a new credit card scam called "Card Cracking." (Photo Credit: PT Money, ptmoney.com)

As a college student, a lot of things compete for your attention right now. Finishing assignments, passing exams, seeing friends, looking for jobs or internships… the list goes on and on. While these are all important things to focus on, learning about credit is crucial for your future success, as well.

Many potential lenders, employers and landlords will check your credit to decide if you’re a qualified borrower, employee or tenant. If you don’t know much about it, you may just cross your fingers and hope for the best when someone asks to check your credit. However, with so many important things riding on it, it’s much better to get informed now.

One commonly used item to determine someone’s creditworthiness is their credit score. A credit score is a three-digit number that allows inquirers to quickly compare you against others. There are many different scoring models, so what a “good” score is can vary between each one. In general, however, a higher score reflects better credit. The five components of a credit score are listed below.

  • Payment History (35%) – Paying bills on time is the best way to build and maintain good credit. More than a third of your credit score is based on this simple habit.
  • Amount Owed (30%) – How much you owe accounts for almost a third of your credit score. Even if you always pay your bills on time, high balances or large amounts of debt can hurt your score. Think carefully before overusing credit cards or borrowing extra student loan money.
  • Length of Credit History (15%) – This is a reflection of how long you’ve had established credit and the average ages of your accounts. The “length of credit history” factor is one of the reasons some students open credit cards in college – to establish credit at a young age. But before taking this step, take a realistic look at yourself and your financial situation. If you can’t handle the responsibility of paying it off on time, in full each month, it may not be worth it. Missed payments and high balances can hurt your credit. Plus, paying interest on purchases that you can’t pay off in full is an expensive habit to begin.
  • Types of Credit Used (10%) – There’s a difference between revolving credit and installment loans. Installment loans, like student loans, are typically seen in a more positive light than revolving credit, such as credit cards.
  • New Credit (10%) – You may want to avoid opening multiple accounts in a short time period. Each new account impacts your credit score. The exact impact may depend on the type, dollar amount, and number of new accounts.

The most important thing to remember is that what you do now will impact your credit score. Based on your financial choices, it will become easier or harder for you to reach your future goals.

The content provided in this article is for informational purposes only. Nothing stated is to be construed as financial or legal advice. PSECU recommends that you seek the advice of a qualified financial, tax, legal or other professional if you have questions.