Here is a lesson right out of Adulting 101: You need to build good credit as soon as you can. Now you might be asking yourself why this is so important. Everything from buying a car to applying for a store credit card is based off your credit score. This is something that will be with you for the rest of your life! Don’t worry, we are here to give you some tips on how to build good credit while in college, so you’re ready for the real world after graduation!
You should already be paying your bills on time, but if not, we highly suggest starting now! Not only will this help you save money on paying interest, but it can also help you build good credit. Making late payments not only costs more money in the long run, but it can affect your credit score as well!
It’s so, so tempting to have a credit card for every one of your favorite stores, an emergency card and an everyday card. Stop right there! You honestly don’t need all the credit cards. It might save you money in the beginning, but it can quickly spiral out of control. Most cards have fees even if you don’t use them. Plus, keeping track of all the due dates can be a nightmare. Don’t get caught up in all the hype.
If you already have a bunch of credit cards open (with balances), don’t panic! The best way to pay off your debts is to figure out which card has the highest interest. Focus on paying that one off first and once that is done, move on to the next highest. Make sure to pay the minimum payment on other cards, but make your main focus the high interest card!
This might surprise you (it surprised us), but you shouldn’t close your old credit cards. It might sound like the logical next step, but it can actually drop your credit score. If you have a high credit score it won’t affect your credit score much, but a low score can drop even more. To avoid closing the account completely, make one or two purchases a year and immediately pay them off. This way you won’t get charged interest or inactivity fees.
If you’re determined to open a store credit card, make sure you aren’t applying for one every time you visit a new store. Each time you apply for a credit card, they do a credit background check on you. This in turn is flagged in your account. Instead of helping you build good credit, it can damage it even more. Wait about six months between each application for a higher rate of being approved!
Maybe you want to ease your way into the credit card world (we wouldn’t blame you). Maybe you only need a credit card for emergencies. Either way, you can become an authorized user on a family member’s credit card. Your name can be on the card so you can use it, but the primary card holder is responsible for paying the charges. This card does get added to your credit-report and it helps you build up your credit file, which is a good thing.
When you are just starting out or are trying to repair your credit score, a secured credit card is an option you may want to try. Secured credit cards are tied to a separate savings account and the spending limit is based on the amount you choose. Just as with a regular credit card you build credit by making payments on time and making responsible charges. Not all lenders report secured credit cards to credit reporting companies. They may reward you by converting your secured credit card to a traditional credit card. Remember, this is not an emergency card, this is a work in progress card!
Congrats on being in good standing with your finances! Now, you have the option to increase your spending limit on your credit card. This higher limit lowers your utilization rate, which in turns boost your credit score up. The lower the utilization rate, the more trustworthy you look to lenders and investors. Plus, the higher limit comes in handy for emergencies, just make sure you don’t go over the limit.
Student loans are one of the most common and dreaded parts of college. You usually have a six month grace period to start paying them off after you graduate. You can always get a head start on them especially if they are unsubsidized. This is the interest that accumulates the moment the loan is taken out. Once you start making payments, they will show up in your credit file and give you a head start in earning points for your credit score.
If you are commuting back and forth to college, it’s important to have a reliable car to get you where you need to go. Make sure you shop around for the best car and lowest interest loan rate (you’ll thank us later). If you have trouble getting a loan by yourself, have a family member co-sign with you. Once everything is set and you have the keys, make sure to pay your monthly bill on time every month. Consistency is key to when you want to build good credit!
Banks want your business and some of them will even help you build up your credit. Ask your bank if they offer a secured loan. Much like a secured credit card, you deposit a certain amount into an account (interest bearing) and then borrow against it. This deposit is your collateral and you’ll pay the money back at a higher interest rate than your deposit earns. Remember, you still have a monthly payment that needs to be paid on time! This is a great stepping stone to better credit.
When you’re just starting your credit journey, getting started is one of the hardest parts. If you don’t have any credit history, it can be tough to be approved by credit card companies. Now, if you can prove you are responsible when it comes to your finances, show it to them! Ask them if they will accept cell phone bills, rent, etc., as proof that you make payments on time and that you are worth taking a risk on. Not all companies will do it, but it’s definitely worth a shot.
Repeat after me, “Budgets are your friends”. One of the easiest and simplest ways to keep track of your finances is to budget. Set a weekly goal for yourself and do your best to not go over it. Set spending limits for groceries, spending money, bills and savings. If by some miracle, you have anything left at the end of the week, you can decide which category to put it in. Budgets are easy enough to make and you can even use your smartphone to keep track of everything.
Don’t be the person that only checks their credit score once a year! You honestly should check your score about once a quarter (three month intervals), so at least four times a year if not more. This way you can check to see if your score goes up or down depending on how you handle your finances. Most credit card companies offer free credit score checks, but there is also a number of independent companies that offer this. Don’t be afraid to take advantage of this service.
Now that you know how important it is to build good credit, you’re ready to get a credit card! But how do you know which one is for you? There are several things to consider: interest rates, cash back and joining incentives. If you aren’t sure which one is best for you, shop around. There are apps and companies that specialize in credit card comparisons. Simply tell them what you’re looking for and they will take it from there! They will pair you with a card that works best for you!
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