Protecting Your Credit: A Guide for Future Graduate Students
Between studying for the GRE and writing your personal statement, your credit may be the last thing on your mind as you prepare for graduate school. But having good credit can make life a lot easier, especially if you need to take out a private student loan, open a credit card, or rent an apartment.
A strong credit score opens the door not only to private student loan approval, but also to lower rates and fees. Fortunately, you don’t need to be a finance expert to maintain good credit. With a few simple steps, you can protect and improve your credit as you transition to graduate school. Here’s how.
1. Check your credit score
Get started on your credit journey by knowing exactly where you stand. While there are multiple credit scoring models, most lenders rely on your FICO score, which ranges from 300 to 850.
You can find your FICO score at myFICO.com or through the credit bureaus, Equifax, Experian, and TransUnion. Some credit card issuers also offer free FICO scores to cardholders.
Your credit score represents how you’ve managed credit, like loans and credit cards, in the past. It’s based on five main factors:
- Payment history (35%): On-time payments help your score, while late payments bring it down.
- Amounts owed, or credit utilization (30%): This compares how much credit you’re using to how much is available to you. Try to keep your utilization under 30%.
- Length of credit history (15%): A longer credit history can help your score, so avoid closing old accounts if you don’t have to.
- Credit mix (10%): Having a mix of credit types, such as installment loans and revolving credit, can boost your score.
- New credit (10%): Applying for new credit, especially in a short amount of time, can hurt your credit due to hard credit inquiries.
If you have a high credit score, lenders see you as a low-risk candidate for a loan and may offer you a better interest rate. A lower credit score though, can mean you get stuck with higher rates or have trouble getting approved on your own.
2. Review your credit reports
While your credit score represents your financial history, your credit reports show it in detail. You can request your credit report from each of the three credit bureaus from AnnualCreditReport.com (free reports are now available weekly).
On your credit report, you’ll see a list of your various accounts, such as loans and credit cards. You can see whether your accounts are in good standing or if you have late payments or delinquencies that are harming your credit score.
Negative marks can be a red flag to lenders when you apply for a student loan or other types of loans.
3. Dispute any errors you find
The credit bureaus don’t always get it right, which is why a Consumer Reports and WorkMoney study found that almost half of participants found mistakes on their credit reports. Inaccurate information could be unfairly hurting your credit score, so try to get it removed as soon as possible.
If you find any errors, you can submit an official dispute to try to have them removed. If you succeed, the inaccuracy will disappear from your credit report, and you could see your credit score improve as a result.
4. Keep your personal information safe
Fraud and identity theft can not only cost you money, but they can also have long-lasting negative effects on your credit. With scammers getting more sophisticated, it’s crucial to protect your personal information.
Here are some ways you can keep your personal details safe:
- Use strong, unique passwords for your online accounts, especially your financial accounts
- Enable two-factor authentication or biometrics whenever possible
- Be cautious about phishing emails or calls that request your personal information
- Monitor your accounts regularly for unauthorized activity
- Review your credit reports for signs of fraud
If you spot any fraudulent charges or other questionable activity, contact your bank or credit card issuer right away. You can also freeze your credit reports so no one can take out credit in your name, as well as report identity theft at IdentityTheft.gov.
5. Pay your loans on time
If you’re paying back undergraduate student loans, other loans, or credit cards, focus on making on-time payments. Your payment history makes up the biggest portion of your FICO score at 35%. Even a single late payment can put a serious dent in your credit score.
Using automatic payments can help you avoid missing bills. Just make sure you have enough in your bank account every month to avoid overdrafts. You can also set reminders in your calendar for when your payments are due.
If you’re struggling to afford payments, contact your lender about your options. Federal student loans, for instance, qualify for programs like income-driven repayment, deferment, and forbearance.
6. Keep your credit card balances low
Credit utilization has a major impact on your credit score. This refers to the amount of credit you’re using compared to what’s available to you. If you’re carrying a $2,000 balance and have a $6,000 credit limit, for example, your credit utilization is 33%.
It’s a good idea to keep your credit utilization below 30% to protect your score. If your utilization is higher, you might lower it by paying down your balances and/or requesting a credit limit increase. Consolidating your debt with a personal loan could also help, but be careful not to increase your borrowing costs.
If you tend to overspend on your credit cards, take time to figure out what’s triggering this pattern. Setting clear limits, such as not spending more than you can pay off each month, can help you break the habit (and avoid the interest charges that come with a revolving balance).
7. Keep your old accounts open
The length of your credit history also impacts your score, so as you work to protect your credit, avoid closing old credit card accounts. Closing old accounts can shorten the overall age of your credit, which can cause your score to drop.
If you have an old credit card that doesn’t charge an annual fee, consider making a small purchase on it every now and then to keep the account active. If you’re no longer using a card that has a fee, ask your credit card issuer if they can downgrade you to the no-annual-fee version of the card.
That way, you won’t accidentally lower your credit score right before you need to apply for a graduate student loan or other type of financing.
8. Avoid racking up hard inquiries
When you apply for a new loan or credit card, the lender will run a hard inquiry to check your credit. Each hard inquiry can temporarily lower your score, usually by five points or fewer.
If you’re gearing up to get a graduate student loan, try to limit your other credit applications in the months leading up grad school. To protect your score, only apply for new credit when necessary.
If and when you do need a loan, find out if you can compare offers without a hard credit check. Many lenders let you prequalify online, which lets you check your potential rates with a soft credit check that won’t affect your score.
9. Consider a credit-building strategy
If your credit score isn’t as high as you’d like it to be, you might use some strategies to improve it before graduate school. Some approaches include:
- Open a secured credit card: A secured credit card is designed for people with a damaged or thin credit history. It requires a security deposit, which usually becomes your credit limit. Your issuer will report your payments to the credit bureaus, so on-time payments can build your score.
- Take out a credit-builder loan: With this type of loan, you make payments over a set term, which get reported to the credit bureaus. The lender will release your funds once you’ve paid the loan back in full.
- Become an authorized user: If someone adds you as an authorized user to their credit card, you can benefit from their on-time payment history. The opposite is also true your credit could go down if they make late payments.
If your credit is still on the low side, you might enlist a cosigner for your graduate school loan. Adding a creditworthy cosigner to your application can help you get approved and potentially get a better rate. Just remember that your cosigner’s credit will be impacted by the loan, and they’ll be expected to make payments if you fall behind.
Protect your credit as you get ready for graduate school
Maintaining and improving your credit can make the transition to graduate school a lot easier. With a good credit score, you’ll be more likely to get approved for a private student loan, unsecured credit card, or even a rental apartment.
While building good credit doesn’t happen overnight, small, consistent steps can pay off over time. By paying your bills on time, keeping your credit card balances low, and using other strategies, you can protect your credit score and head into graduate school with your finances in order.
