While many students begin to focus heavily on improving their credit score after they graduate from college, the truth is that you can lay a solid foundation for great credit while still in school. A number of misconceptions exist in regards to building and maintaining an excellent credit score, particularly among young people. Following are some tips for college students to help them graduate with a great credit score that will open many doors for them when they purchase vehicles, homes, and more.
Review your credit score and reports.
Just as students look closely at their grades, they should also pay attention to their credit score and understand exactly what it means. Understanding what their score means can help students create a game plan for reaching their goals by applying to the right opportunities. In general, a credit score looks at payment history, debt, the length of your credit history, and the type of credit used. Of course, young people are at a disadvantage because they do not have a long credit history, nor do they have a lot of different types of credit open to them. However, taking small steps should cause your credit score to slowly increase over time, which can give you a sense of accomplishment and show you how much control that you have over your financial health. Occasionally looking at your credit report will also help to identify potential cases of identity theft and lead to a quick resolution of any problems.
Begin with a basic credit card.
In order to build a credit history, students should opt for a basic card. The large issuers have cards designed for college students without a credit history and only a moderate to low income. If necessary, parents can cosign on a card for their student provided that they have a decent credit score themselves. Often, however, this step is not necessary since students will want a low cap on their card anyway. In college, when students often do not have the time or means to earn an income, it is critical not to accrue debt, which can prove crippling after graduation. Students should charge only small amounts that they can pay off at the end of each month. Doing so will establish a history of on-time payments without creating future obligations. Importantly, students do need to use their credit card to improve their score. Opening an account and letting the card sit in a drawer will not harm your credit score.
Stick with one account.
Some students become overzealous and apply to a number of cards all at once to rapidly expand their credit history. This strategy does not work well, since inquiries into new credit can seriously hurt your score, especially if you do not have an established credit history. Instead, people should do their research and decide on the card with the perks that they want. Online tools can help students compare the options and weigh the pros and cons of each card, as well as figure out which they will likely qualify for if they apply. Opening and closing accounts frequently can hurt your score. Plus, the overall length of your credit history has a bearing on your credit score, so students should keep their first account open for as long as possible. This makes it crucial to choose the best option upfront.
Consider alternatives to credit cards.
Not all students will qualify for a traditional credit card right away, especially if they already have a negative credit history. However, anyone in this situation has options. You can become an authorized user on someone else’s credit card, which can help you to piggyback on the good credit of the other person to boost your own score. You can also talk to your banks. If you have a checking or savings account open with a particular institution, you will be more likely to be approved provided that your account has no history of overdraft.
Pay all your bills on time, not just your credit cards.
Too often, students think that only loans and credit cards contribute to their credit history, but this is not true. Many credit bureaus also look at your payment history on other bills in your name, such as utilities or even rent. While a lot of landlords do not yet report to credit bureaus, students can request that their own landlords start to do so in order to improve their credit history. Moreover, students need to be sure that their roommates are trustworthy. If one person keeps getting shorted by their roommates for rent, electric, gas, and other bills, then it can be difficult to make payments on time. Students need to remember that their credit is on the line and should live with dependable people who are able to pay their bills.