Editors' pick: Originally published Feb. 17.
Consumers' credit scores are affected by the amount of student loans they accrue as the amount of debt can lower their creditworthiness.
While the type of bachelors or associate degree does not correlate directly with income, consumers who have graduate degrees tend to have higher credit scores, said Alex Coleman, vice president of data analytics and partnership, based on an analysis of data from the customer database of LendEDU, a Hoboken, N.J.-based student loan marketplace.
Graduates with an MBA, law or pharmacy degree or even a PhD tend to earn higher incomes and often produce a higher credit score, LendEDU said. People who have graduate degrees often have higher amounts of student loans, along with large auto loans and mortgages.
The study indicates that older individuals tend to have a higher credit score in general, and this conclusion "makes sense as the length of your credit history can make up roughly 15% of your FICO score," said Jeff Golding, chief growth officer at IRH Capital, a Northbrook, Ill.-based financial company.
While the ages of the consumers in the study were not disclosed, it is reasonable to conclude that the majority of people who have a graduate degree are older than undergraduates.
While graduates with larger amounts of student loans also have higher scores, the link suggested by LendEDU could also prove to be factual because the scoring models take into account someone's ability to borrow larger amounts with timely payments. The amount currently owed by the consumer compared to the original amount borrowed, or the high limit, can account for roughly 30% of your FICO score, he said.
"Since installment loans, like autos and mortgages, have higher balances to start, as they get paid down, your score will tend to rise," he said.
The study indicated that people who have MBAs are less worried about accruing debt and accumulate the most credit card debt while also amassing higher mortgages and auto loans.
The people with the lowest credit scores are not surprisingly, recent graduates and current students who have not generated a long credit history.
Having a top notch credit score plays a critical factor in determining what interest rate lenders will offer consumers and a higher score means paying less interest, which can accumulate quickly over the years.
A high credit score is the key to ensuring that borrowers receive a low mortgage or credit card rate. Here's a quick rundown of what the numbers mean - a score of anything below 620 ranks as poor, 620 to 699 is fair, 700 to 749 is good and anything over 750 is excellent. Think carefully before canceling a credit card with a long, positive history, but decrease your debt. One of the biggest factors which impact your credit score is your credit utilization rate and paying on time.
The best credit scores come from pharmacists, the data from LendEDU demonstrate. The second best credit scores are from people with law degrees. Consumers with masters, PhDs and MBAs rank third, fourth and fifth, respectively. People with bachelor degrees rank sixth while individuals with associate degrees rank last.
Graduate students have a more significant amount of credit card debt, because the majority are over the age of 21 since the Credit Card Accountability Responsibility and Disclosure Act of 2009 limited access to credit for consumers below the age of 21, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.
"Lifestyle is another consideration, as many graduate students are already full-time wage earners and have incomes that can help them qualify for larger lines of credit than their undergraduate counterparts," he said.
Many of the attributes which are factored into a credit score are aided by individuals with higher incomes, because they tend to use credit less often, avoid carrying high balances or having delinquent payments, said Jim Triggs, a senior vice president of counseling and support of Money Management International, a Sugar Land, Texas-based non-profit debt counseling organization.
"Having an advanced degree could also mean more student loan debt," he said. "Unfortunately, since the recession, having an advanced degree doesn't guarantee a career in the chosen field and certainly doesn't guarantee a great credit score."
Graduates often need help determining their budgets and how to pay off their debt, especially individuals who are saddled with student loans, credit card debt, auto loans and a mortgage.
"Although having a graduate degree may help with some factors relating to your credit score, your financial behavior will ultimately dictate your credit score such as missing payments," Triggs said. "Our non-profit, Money Management International, helps consumers with all income levels learn how to balance their budgets, save for the future and lead a healthy financial life. We even have a financial management program tailored for incoming rookie NFL football players and individuals within the World Wrestling Entertainment (WWE)."
Earning a higher income, such as a lawyer, does not mean that individual has less credit card debt, according to the data. MBA and PhD graduates have accumulated the largest amount of debt from credit cards and owe an average of $4,000 or more.
The largest auto loans are sought by pharmacists and the median amount is $41,764. Their level of debt is followed by those with MBAs and PhDs.
Lawyers tend to be more conservative when obtaining auto loans and their debt level is slightly higher than bachelor and associate degree holders, Coleman wrote.
The largest mortgages are sought by people with MBAs who borrowed a median of $445,000, followed closely by pharmacists and attorneys.