What is a Credit Score? A Quick Guide
According to the Free Financial Dictionary, credit score is defined as,
A credit score is a numerical expression based on a statistical analysis of a person’s credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based oncredit report information, typically sourced from credit bureaus / credit reference agencies.
In laymen’s terms, a credit score is an at-a-glance measure of risk for banks. The higher the number, the less risky you are to lend to or be given the ability to charge purchases to a line of credit.
In the USA, there are three main institutions that calculate this figure for you: Equifax, TransUnion and Experian. Each will have their own credit score and their own way of figuring out where your number lies.
As a student, you may wonder what it means to you. Simply put, an average or better credit score will go a long way toward getting you approved for a private student loan or federal GradPLUS loan. Of course, it also will allow you to get a credit card with an attractive interest rate.
How do I build my credit score?
The first step is to either get a student credit card or find a service that reports your monthly payments to a credit bureau. Cellular carriers (like Verizon or AT&T) typically will report your payments and this allows you to build the beginning of your credit without having to use a credit card.
To check out some of the cards we recommend, view our student credit card library.
The most important rule to understand is the key to building your credit is never missing a payment. There is no quicker way to sink your credit and potentially rack up some crazy fees than to forget about a payment or make it very late. Stay on top of your finances and your credit will grow quickly and flawlessly.
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