What is a Credit Score?
A credit score is a three-digit number that summarizes the historical credit information on an individual’s credit report. The number reflects the likelihood that the individual will pay the amount due on time. In other words, a credit score is a calculated assessment of an individual’s creditworthiness. Many lenders use an individual’s credit score, as well as other factors, when deciding to extend credit. Your credit score can also influence your interest rate. Lower credit scores tend to receive higher interest rates.
What’s a good credit score?
The most common type of credit score is the FICO score, which stands for Fair Isaac Corporation – the creators of the FICO score. FICO scores have a range of 300 to 850, with 850 representing the best score. A lower credit score suggests a greater risk that the individual will not fully repay the loan, whereas a higher credit score suggests less risk and a stable financial situation.
Every lender using a credit score as a variable in their decision to extend a loan to an individual will have their own criteria they use to assess the amount of risk they will tolerate. For example, one lender might elect to lend only to individuals with a score that is greater than 700, whereas another lender might elect to lend to individuals with a score that is greater than 640.
Generally speaking, a score greater than 700 is considered a good credit score by most lenders. Usually a higher credit score is more likely to get a better interest rate, though each lender uses their own method and criteria when determining interest rates.
What’s the average credit score for a typical college student or high school graduate?
According to Credit Karma, the average credit score for people between the ages of 18 and 24 was 630. The average credit score for people between the ages of 25 and 34 was slightly lower at 628. In fact, the first age group to break a credit score of 630 was those between the ages of 45 and 54, with an average score of 646. The key takeaway from this data is to make smart credit decisions early on, or else it can take years to build it back up.
Why do I have a low credit score when I haven’t graduated yet?
If you’re in high school or college and recently checked your credit score only to find out that it is low or even nonexistent, don’t worry – you’re not alone. In fact, most individuals within this age group have a low or nonexistent credit score simply because they haven’t had a chance to build their credit history yet. If you’ve never had a car loan, mortgage, credit card, or other type of credit, you won’t have a credit history; as a result, you won’t have a credit score either.
There are a few ways that you can establish a credit history and improve your score if you’re in this situation. One way is to have a parent or legal guardian with good credit authorize you as a user on their credit card. Even if you don’t use the card, you will start building credit history as payments are made on time. This is called “piggybacking,” and it should ideally be done using a family member or spouse’s credit account.
Tip: Don’t be intimidated by a low credit score! Start building your credit history early, make smart credit decisions, and watch your score grow.
How can I get a private student loan with little or no credit history?
If you have a low credit score – or don’t have one – you likely won’t qualify for a student loan on your own, but it doesn’t mean you can’t get one. Instead, you will have to apply with a cosigner. A cosigner is another individual, usually a parent or legal guardian, who will sign the loan with you. The loan will appear on both your and your cosigner’s credit report, and both individuals are financially responsible for repaying the loan. Even if you do have a credit score, applying with a cosigner could help you qualify for a lower interest rate if your cosigner has a better credit score. Learn more about student loan cosigners here.
Can my credit score change?
Credit scores naturally change over time as a consumer’s credit file is updated continually with new information from creditors (credit cards, mortgages, car loans, utilities, etc.). Your credit score represents the latest “snapshot” of information contained in your credit file at the time it was requested. As your credit file changes, so will your score.
Your score could also change depending on which credit-reporting bureau it is pulled from. There are three national credit-reporting bureaus (Equifax, Experian, and TransUnion), and each bureau might not have the same credit information on file for you. As a result, if your credit score was pulled from each of the bureaus on the same day at the same time, it’s possible each score could be different. Lenders usually work with one of the three bureaus to obtain your credit score when you request credit.