Importance of International Student Credit Score
Importance of International
Student Credit Score
When students are looking to take out loans and finance different purchases one universal figure matters the most. A person’s credit score is a number that shows potential retailers and banks their overall credit rating broken down into a figure. The higher the credit score the better the likelihood of getting student loans, financing, or mortgages.
What are credit scores
A credit score is an important function in the world of personal finance. Mortgages, personal loans, and car financing all will depend on a credit score. Even car insurance has credit score requirements.
University students are no different. Looking to get an apartment near campus? Need a private student loan to be able to afford tuition? Want the deposit on your utilities waived instead of having to pay extra money upfront? You will need to have a strong credit score!
The credit score of a student (or your cosigner) is a three-digit number determined by three credit bureaus. Each of these credit bureaus determines a number based on your past payments, loans, and credit cards. This number shows the potential risk that you have in repaying a loan.
The lower the credit score, the higher the risk. If you have shown that you can regularly make these payments without being late your credit score will look good. In addition, having credit can help, but having too much can hurt you.
What is a Good Score?
Credit scores can range from low to high. On most scales, a credit score ranges from 300 to 850, with 850 being the perfect credit score. What constitutes a good score is dependent on the company or bank you are looking to borrow from. If you have a credit score above 600 you are average. Scored in the 700s are considered good, and those above 770 can be considered very strong.
Why do the credit score and payment
history matter to a Student?
As mentioned earlier, credit scores are used for just about everything. Nearly 90% of companies are thought to use credit scores in some way. Ever seen the commercials on television of companies that advertise no credit checks?
This is a concept used by companies to bring in customers who may have poor credit and cannot find funding. Is it high risk? Absolutely! Even when it comes to students, credit scores matter. The biggest factor is trying to get a private loan for tuition.
The bank or lender that a student goes to will certainly look at a credit score. Even if your credit score passes their mandatory limit, the exact score will matter. The higher your credit score, the more likely you will receive a better interest rate. Banks want to make sure that you are not going to default on a loan, so they use the credit score to determine your risk.
Credit scores also matter when trying to rent an apartment or buy a house. Apartment complexes may complete a credit check on potential tenants to make sure they have a strong history of making payments on time. An apartment complex will not want to lease to a person who may not make their monthly payments on time.
Some students buy houses as an investment in college, and having a good credit history is an important factor in getting an approval. The credit score will determine what type of loan a student can get, how much money they will need to put down on the house, and what type of interest rate is on the loan.
Lastly, utility companies will do a credit check to make sure a person can afford to pay for their potential energy, water, sewer, or internet/cable. If a person has a low credit score, they will normally have to pay a deposit before service can start. Those with higher scores will usually have their deposit waived.
Even outside of living expenses, housing and tuition, credit scores play a role to all students. More and more in today’s business world, potential employers are starting to do background checks on candidates that include a credit check. Employers often check credit to see if a candidate is financially responsible.
Banks and financial institutions carry out credit checks that determine whether potential employees are higher risks for stealing or committing fraud. Poor credit scores can potentially impact your chances of receiving a job and can make or break a potential offer.
What are credit bureaus?
Credit bureaus, also known as credit reporting agencies, are companies that keep track of your credit history and sell this information to lenders who may use it to decide whether or not to lend money to you.
There are three major credit bureaus in the United States:
- 1 Experian
- 2 TransUnion
- 3 Equifax
Each Bureau has its own way of calculating your credit score. However, the three scores are usually very similar.
The main job of a credit bureau is to keep track of your credit history and fico score. However, they also sell this information to lenders and credit card companies. Lenders use this information to decide whether or not to lend money to you.
How do you get a Good Score?
We have established that having a good credit score is important, but keep in mind that most international students who are non-US citizens will not have a credit score as they may have limited or no financial information to review in the US.
How International Students Can Build Credit
As a result, most students will have to find a US citizen or permanent resident who will act as their cosigner. In this case, the bank or other financial institution will evaluate this person’s ability to pay in case the student becomes unable.
Depending on the loan, they might be able to instead look at other criteria like if you’re attending an eligible school and demonstrate high career potential. International students will need to research if they’re eligible for a no cosigner loan.
This doesn’t mean, however, that international students can’t start to build their credit history – and thus, credit score. If you are a student who is a US citizen, then it is also a good idea to start building your credit history as well.
The first step will be getting credit building accounts. Many students and young people do not have a lot of credit built up. Most do not own houses or have credit cards that they use. The first step is finding a bank and seeing whether you can get a credit card.
Of course, it is important to be on an account that is regularly paid. One of the easiest ways to get higher credit is to continually make payments on time. This will certainly build credit, as your credit score is significantly affected by the timeliness of your payments.
Missed payments (especially chronic or consecutive missed payments) can significantly affect your credit score.
Credit utilization is another important factor. It refers to the amount of your available credit that you are using at any given time and is a key component in calculating your credit score. For example, if you have a credit limit of $5,000 on your credit card and you use $2,500 of it, your credit utilization is 50%. High credit utilization can signal to creditors that you're over-reliant on credit, which can negatively impact your credit score. It's generally recommended to keep your credit utilization below 30% to maintain a good credit score, as this demonstrates to lenders that you can manage credit responsibly without maxing out your available funds. Paying down your credit cards or asking to increase credit limit on your cards are two ways to reduce your overall credit utilization.