Your credit score is important because it shows lenders how responsible you are with money and it can impact your ability to take out student loans, specifically private (alternative) loans.
Every lender has different credit requirements. If you have a good credit score (generally above 700), you will have an easier time getting a loan, since lenders will see that you are likely to pay it back. And the better your score, the more likely you are to get lower interest rates. So, before you sign on the dotted line, do some research and make sure you are getting the best loan terms that are available.
Surprisingly, your income does not affect your credit score at all. But more than 25 other factors do, including:
- How much credit you have been extended (credit cards, loans, etc.)
- How much you owe (total debt)
- Whether you pay off your debt on time
- How many times you have asked for credit
- How long you have had credit
If you are looking to increase your credit score, below are a few tips you should follow.
- Try to lower your credit card balance
- Make your payments on time every month
- Pay off your credit cards instead of moving the debt around
In the United States, there are three consumer reporting agencies:
Check your credit report once every 12 months from each of the three consumer reporting agencies. It's free, although they may charge you a fee for your actual credit score (sometimes called a "FICO® score").
Look at your annual credit report to ensure all of the information is correct and you have no disputes with the data.
- Be aware that the three consumer reporting agencies use slightly different scoring models, so your actual credit score may vary for each.
- Having a good credit score is of benefit if you ever want to buy a car, buy a home, go back to school, or even get a cell phone. It may even make you eligible for lower insurance rates.
- If you have a credit card, be careful. Every transaction, every payment, every missed payment is noted in your credit report.
- Be selective how many times you apply for credit. Having businesses such as credit card companies, cell phone providers, or lending institutions check your credit may hurt your credit score. The more inquires you have, the more points you may lose.