Business Marketing & Finance Resources

You may have heard financial institutions talking about your credit score, but unless you follow financial information you may only have a cursory knowledge of what this actually means. We will explore what a credit score is, what can affect it, and how to increase it.

A credit score is a numerical value given to your financial history based on a number of factors. Your credit score is derived from the financial products you hold, how long you have lived at one place, how long you have had your bank account, and how many places have run your credit history. The main focus of the credit score is your financial accounts and whether they are in good standing. No defaults on your account usually mean you are less of a risk, thus you are rewarded with higher points. However, if you have multiple debts such as a mortgage, credit cards, and car loan you may be dinged due to more debt than income. Your debt to income ratio is very important. To have excellent scores you need to have a higher income than your debt.

Usually someone without a financial history will also have high credit scores. No financial history means you have nothing to lower your scores with. It also means you tend to have lower debt. An 18 year old often has a small financial history. They may have a bank account, address, and one phone number. They may have a few companies running their credit history, but chances are they do not have a car loan, mortgage or credit cards. They may begin obtaining student loans, which can affect the debt to income ratio.

Now that you understand a little about credit scores we can discuss how they affect you. If you have little to no credit any financial product you want like a car loan or credit card will often provide a higher interest rate because they cannot assess your risk such as will you pay the loan off or default with it. Someone with a low credit score is a high risk and therefore it may be tough to get any kind of loan save payday loans from payday lenders.

A long history of paying your debts on time, a low debt to income ratio and a low risk assessment will mean more financial products are available to you. It also means you can obtain a lower interest rate on most of the products.

Banks offer credit cards for college students for a very simple reason; they want to be able to introduce their brand to these college students so that once these students are already working, they would now choose financial institutions which they are familiar with. Another reason is that they could immediately build a credit reputation. In order to promote this, most credit cards that are being offered to college students include low interest rates, no transaction fees, and other packages the a student might need.

We are all familiar with the importance of building a great credit as soon as possible. It would allow us to make big purchases both for our basic necessities and our heartfelt desires. This could also give us the power to purchase other things or services that we might need in the future. By having a plastic card at a young age, you will be able to build a good credit thus investing for future purposes.

Now, what would be the best plastic for a college student? The best card must offer rewards points, low interest rate, and possibly a discount on some services if I use their card. A type of credit card that will be useful for a student is immediately a prepaid debit card or a secured credit card. A prepaid debit card has the same concept as a credit card; the only difference is that it has a pre loaded amount in the card. The pre loaded amount is the one that is being decreased every time you purchase it, this would mean that there will be no bills and no interest rates. The amount you put into the card is your only limit, a perfect card for people with bad credit and also students.

The secured card, on the other hand, requires you to deposit a certain amount before you could use it. The amount you deposited would be the predetermined limit of the card; the concept is that you told the bank the maximum amount that you can afford to pay. Perfect for teaching people their credit limit and also teaching them a sense of responsibility. This type of card could eliminate your chances of having a record of a bad credit history while at college.