Our latest blog installment comes from Ally Wagner…a TransUnion summer Corporate Communications Intern. Ally is a senior at Clemson University where she majors in Marketing and Financial Management. Among her many activities, she participates in student research, the Clemson University Marketing Association and the club field hockey team. Ally grew up in New Jersey with her parents and twin brother. She hopes to one day start her career in a major city.
Balancing books and a credit score is no easy task for students. As if college isn’t tough already, add on the responsibility of understanding, building and maintaining strong credit.
It is drilled into our heads that the college years are crucial for establishing a solid credit footprint for our future. However, as a college student myself, I can confirm that despite the emphasis on its importance, managing credit can be a matter of sink or swim for young adults.
As I have navigated the world of credit in my young-adult years, I have come across some things I wish I knew as I started managing my own credit. To see if my peers had similar thoughts, I conducted an informal poll of my fellow interns with the hopes of identifying and filling gaps in college students’ credit knowledge.
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Here is what rose to the top of the list:
1. Alternative data may be factored into your credit report.
Many college students, including myself, are unaware of the alternative data that can be found in some credit reports. So, what exactly is alternative data? Information gathered from non-traditional data sources, such as rental payments, phone bills and other utilities. This information is important to understand because of the number of expenses that surface during college. Many students are unaware of the impact that a late rent or phone payment can have on their credit report. With the more frequent inclusion of alternative data, it is now more important than ever to stay on top of your finances to ensure you aren’t unknowingly damaging your credit through non-traditional information.
2. How the amount you are paying and the timeliness of your payments impacts your credit score.
When you are a college student on a budget, it’s tempting to make the minimum required monthly payments – and can sometimes be your only option. Many, including young adults, are unsure of the impact meeting the minimum obligations on your credit cards can have on your credit score. There are two key things to know when considering the amount you are paying and the timeliness of your payments. The first, is that you should always make at least your minimum payment on time, because it demonstrates you are a responsible borrower and have the ability and willingness to meet your payment obligations. The second is to always be aware of your credit balance – even if you are paying on time. Your balance can easily creep up without proper monitoring. Maintaining a low balance relative to your available credit, known as low credit utilization, signals to lenders or issuers that you are less of a risk. Keeping these two factors in mind when making your monthly payments can help avoid habits that are damaging your credit score.
3. The effects of owning multiple credit cards on your credit.
Financial freedom is one of the most exciting parts of being a young adult; it makes shiny, new credit cards enticing. Many new spenders aren’t aware of the impact owning multiple credit cards has on your credit score – I wasn’t. Owning too many credit cards as a college student is not generally advised and here’s why. Each time you apply for a credit card, the lender or issuer pulls your credit report. Too many of these ‘hard inquiries,’ can damage your credit score by implying you are a higher risk to lenders, setting you back unnecessarily. Additionally, credit score models factor in the number and variety of credit accounts that you hold. The more credit cards you hold – the less diverse you are, and therefore the more likely additional cards will hurt your score. If you are a new credit card user, it is better to focus on building a strong credit history with a reasonable number of credit cards for your circumstances.
It is important to focus on building good financial habits as a young-adult – monitor and track that the data being reported on you is accurate. Download TrueCredit and track your credit score for free.