The average college student, typically aged between 18-22, undergoes significant financial life changes due to the well-documented and socially relevant financial strain caused by higher education. And the equally well-documented and discussed journey into financial adulthood. Within those changes is the, at times, abstract concept of credit and how it can benefit or harm a college student’s present and future goals. While not all college students fit within those parameters of age and financial awareness, it’s clear that credit becomes a factor regardless. And how one uses that credit determines their overall buying power and economic status. This study hopes to determine not only the average credit score of a college student but also how it affects them financially and, by default, mentally. Furthermore, how those factors impact their local and federal governments based on trends and data from both.
Average College Student Credit Score
The average college student has gone through the hurdles of applying for and being accepted into various grant programs, scholarships, and financial aid. Many often work part-time to help pay for college and living expenses.¹ While each of these aforementioned factors shows a certain level of financial aptitude, none of them lend themselves to credit. Most banks and credit unions don’t consider student loan debt a factor when qualifying someone for a loan. After all, this would eliminate the over 90 million Americans with varying degrees of student loan debt.²
Because of this, the average college student has no credit history. This is especially true of first and second-year students. College students with a credit score have an average of 672, considered fair credit.³ While it’s worth noting that having “no credit” is better than bad credit from a lending standpoint, either scenario results in lower lending power and higher interest rates. Additionally, beginner credit cards typically have limits between $500-1000, making it easier to reflect high credit card usage, reducing credit scores.
Average College Student’s Credit Score by Grade Level: Does It Get Better or Worse From Freshman to Senior Year?
Studies show that the average credit card debt increases 80% between the first and last year of a 4-year college experience.⁴ Additionally, only 39% of first-year college students have a credit card compared to the 77% of 4th-year students.⁴ Considering the increase in debt and credit card ownership, we can reasonably assume that credit scores increase, albeit minimally, during college and that students see increased value in credit cards throughout their college experience.
However, only a portion of this increase is contributed to healthy credit habits. Many college students have their credit card bills paid by their parents, while others make the minimum payments but accrue the maximum amount of interest while never or rarely paying the balance to zero.⁵
Additionally, over half of all college students admit they’ve accrued too much credit-related debt during their time in school. Combine this with post-college student loan payments, and the rising cost of living, stagnant wages, and the overall financial health of a college student become apparent.⁶
What Factors Contribute to Their Credit Scores Going Up or Down?
There are dozens of factors that impact college student credit scores. Outside of the typical credit factors, these are some additional criteria that we found in the data.
Age
A healthy credit history is one of the most important factors of good credit. As a person has to be 18 to have their own credit card account, age is a clear preventer of high credit. While a student can have a credit history by being on their parent’s credit card, this scenario is far less common. Within age is the factor of maturity level.⁷ While college students may have the financial ability to maintain credit, they often lack the impulse control needed to maintain a low balance. For example, most teenage college students’ shopping and spending habits far exceed their income. Additionally, they may not fully understand the long-term effects of having bad credit.
Marketing
College students have a combined buying power of approx 200 billion annually.⁸ They are the go-to-market for clothing brands, cinema, alcohol, etc. They’re also responsible for new trends, are known for elevating brands overnight, and heavily impact what their parents purchase.⁸
Because of these factors, companies make it easy for college students to access credit. Think of store credit cards, their disproportionately higher interest rates, and how they are sold during check-out. Phrases such as “Save money now…” or “Get this for free..” can entice college students into signing up for credit without fully recognizing its impact on finances. While these practices aren’t deceptive, it’s worth noting that college students are more susceptible to them.
Interest Rates
Interest rates on credit cards and other credit products are nearing the highest they’ve ever been.⁹ Average annual percentage rates range from 18-27% in the poor to fair credit ranges. At the same time, even borrowers with 750+ credit scores can receive rates as high as 8%. With their limited budgets, college students can be priced out of credit that they’ve been approved for, resulting in late payments and other fees.
Other Interesting College Student Credit Scores Statistics
- Approx 50% of college students have no plan to pay off their long-term debt.⁵
- Close to 70% of college students admit to having severe financial stress.⁵
- Only 39% of college students know what a cash advance is and its fees and APR.⁵
- 26% of college students receive zero financial advice from their parents and guardians⁵
- 20% of college students have no credit history or knowledge of credit.⁵
What College Students Can Do To Improve Their Credit Scores
Maintaining good money habits is the first step to building credit as a college student. To serve this purpose, college students can speak with their financial aid advisor, bank, or credit union or utilize their parents as resources. It’s worth noting that there is personal responsibility when it comes to finance, but interest yields, rising costs of living, etc., are far outside of individual control. With that in mind, a college student looking for credit should follow these tips to maximize their score and chance of approval.
Research Pre-Approved Offers
Once a person has a credit history, sometimes even before, they’ll receive pre-approved credit offers. However, the term pre-approved can be misleading, especially to a credit naive college student. Because a person can be denied for a pre-approved offer, applying for said offers reduces your credit score, and if a person isn’t approved. That reduction is for naught. Furthermore, many pre-approved offers come with high-interest rates, fees, and restrictions. Any college student receiving these should read the fine print about potential interest rates and annual fees.
Autopay
On-time payments is a big chunk of a credit score calculation. Autopay is a great tool to avoid missing any payments. And some lenders offer lower interest for automatic payments.
Use Credit For Small Recurring Bills and Emergencies
To build a payment history, a college student can set up small bills on credit and pay them off in full at the end of the month. For example, paying for gas and a few subscriptions with the card and then setting up auto-pay to settle the balance in full. This way, interest charges are avoided while also increasing a credit score.
Bottom Line
The average college student has fair credit at best, ranging in the lows of 670s. However, data supports that this indicates inflation, high interest, student loan debt, and the inextricable financial stress it causes. Other key factors include aggressive marketing and college students’ underdeveloped impulse control. These factors play a more significant role than individual responsibility. However, due to the nature of banking and the sheer amount of financial resources available online and in financial institutions, there is still significant room for the average college student to raise and maintain their credit.
Sources
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8022698/
- https://educationdata.org/how-many-people-have-student-loans
- https://www.cnbc.com/2019/02/12/how-college-students-can-raise-their-credit-scores-.html
- https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.534.9892&rep=rep1&type=pdf
- https://cssl.osu.edu/posts/632320bc-704d-4eef-8bcb-87c83019f2e9/documents/2020-scfw-key-findings-report-combined-accessible.pdf
- https://link.springer.com/chapter/10.1007/978-0-387-75734-6_11
- https://journals.sagepub.com/doi/10.2466/pr0.2003.92.3c.1067
- https://www.researchgate.net/publication/263372684_College_students’_consumption_of_credit_cards
- https://www.pbs.org/newshour/economy/analysis-what-the-feds-largest-interest-rate-hike-in-decades-means-for-you
