Recent College Graduate’s Guide to Understanding Credit Scores

As a recent college graduate, you’re used to being scored. Higher scores mean better grades, which translate to better job opportunities, and maybe even a higher salary down the road. Your grades in college stay important for years to come, and if you do well, those honors may follow you. The concept of a credit score is much the same way; having a good score can open many doors for you financially. You’ll be viewed as an excellent risk by lenders and get preferred interest rates on loans and purchases.

A bad credit score, however, can be devastating—and will follow you in your adult life. If you have a poor credit history, lenders may see you as a high-risk borrower and either charge you higher rates or even decline your application. Jobs can be closed to you as well since many employers use a credit check as part of their hiring process. As you enter the workforce, it’s in your best interest to work on your credit score; it’ll set you up for financial success.

What is a Credit Score?

Credit scores are numbers, three digits long, that let lenders know how much of a financial risk you are. Lenders prefer to approve loans to people who have a history of paying their debt off on time, and your credit score will let them know if you can be trusted to do so. There are several credit score scales, but most of them run from 350-850; the higher your score, the better your credit.

How Credit Scores Work

There are five factors that contribute to your score. Each of them having a specific weight, and some matter more than others.

1. Payment history – It counts for 35% of your credit score and is the single biggest factor. Having even one late payment can significantly drop your credit rating, so it’s important to stay on top of all your monthly payments.

2. Amounts Owed – This looks at how much of your available credit you’re using. If all your credit cards are maxed out, for instance, that looks as though you are unable to use credit responsibly. This accounts for 30% of your score.

3. Length of Credit History – Accounting for 15% of your score, this looks at how long you’ve been using credit, and if you’re able to maintain responsible relationships with creditors over time.

4. New Credit – If you’re opening a lot of new credit accounts, this could hurt your score because it can seem as though you’re in financial trouble. It is 10% of your score, and you’ll want to keep credit inquiries to a minimum.

5. Types of Credit in Use – Lenders like to see different types of credit; an installment loan, mortgage, and credit card look better than just a lot of credit and store cards. This is 10% of your score.

How to Improve Your Score

The single most important thing you can do to improve your credit score is make on-time payments on all financial obligations. Being careful about how you use credit is also important. You’ll want to keep your credit card balances under 30% of your available credit, don’t apply for credit unless you need it, and be sure to look at your credit report closely for any errors, fraud, or other problems that can affect your score.

How to Build Credit Right After College

Many college graduates don’t have much of credit history when they graduate, so it can be difficult to get credit right after school. There are, however, a few ways you can start small and build a solid history.

Opening a secured credit card is a great way to build credit; keeping your balance low and always making payments on time will help to raise your score quickly. If you are paying off student loans, staying on top of the payments can also help you build credit.

How Do Student Loans Impact Credit Scores?

Your student loans have a direct impact on your credit. Most credit reporting agencies — companies that track your credit history — view student loan debt differently from other forms of debt. For example, having student loan debt isn’t nearly as bad as having credit card debt, especially if you’re making timely loan payments. In fact, paying off your student loans can raise your score significantly over time.

That student loan balance, however, can affect you negatively when it comes to taking out more credit, such as for a mortgage. Your debt-to-income ratio will be skewed by the large balance of student loan debt and can affect your ability to get more credit. So, it’s a good idea to pay them off as quickly as possible.

It’s also important to note that if you are late on student loan payments, it can negatively impact your credit score. Being a few days late on a payment will not impact it, but if you are more than 30 days late on a private student loan, or more than 90 days on a federal student loan, it can decrease your score.


It can be hard to build a solid credit history right after college—especially if you don’t already have any history to start with—but there are small steps and actions you can take that will get you on the right path to a high credit score. Doing so will continue to open doors and opportunities for you.

Andy Kearns is a Content Associate for LendEDU and works to produce personal finance

content to help educate consumers across the globe. When he’s not writing, you can find Andy

cheering on the Lakers, or somewhere on a beach.

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