College students could build better credit under pending changes

Jonathan Fox/ISU photo

Changes are coming in how credit scores are calculated, which a financial expert says should help college students and other young adults establish and build credit.

Jonathan Fox, director of Iowa State University’s Financial Counseling Clinic, says it’s traditionally been a vicious cycle as you can’t get credit without already having a credit history, so the pending improvements in the system are a big plus.

“It’s not as much a policy change that stands to help college students as alternate types of scores that will use other bills that college students and young people more typically have, like cell phone bills, cable bills or a utility bill,” Fox says. “If they can show credit responsibility in those ways, that could add to the score.”

Credit scores may not be so important while a young person is in college, but Fox says those scores will have a significant influence as they begin to make the transition into their adult, post-college lives.

“A good credit score is going to impact, very possibly, their job prospects,” Fox says. “Employers look at credit scores as an indicator of general reliability. Whether that’s appropriate or not, is another whole topic.”

Fox, an ISU professor of Human Development and Family Studies, says some students may be responsible money managers, but without a credit card or a bank loan, they’re not establishing a credit history.

“It’s going to impact even while they’re in college the insurance rates they’re paying if they’ve moved independent from parents or guardians, for example,” Fox says. “Of course, it’s going to impact them as soon as they seek any sort of structured loans, to buy a car, to buy a home.”

Attorneys general from Iowa and 30 other states reached a settlement with the three leading credit reporting agencies in 2015 to improve credit report accuracy and to enhance consumer protections. Experian, Equifax and TransUnion will implement the changes this summer.

In addition to including the bill payment history when figuring a credit score, credit agencies also plan to remove tax liens and civil judgments from reports. Fox says those are the source of most inaccuracies on people’s credit reports.

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