College is an excellent time to start building credit for the future. You’re going to want a car, a house, and other things someday that involve credit checks. The good thing is, you don’t have to spend or make much money to start building a healthy credit history. All it takes is some time, planning, and a bit of money if you follow our advice.
The following are some awesome tips The Davis on How to Build Your Credit as a College Student.
Opening a Student Credit Card
One of the easiest ways to start building credit is by opening a student credit card. These usually have low-interest rates, no annual percentage rate (APR) charges for the first several months or years, and other perks. All you have to do is have a parent or close relative with a good credit score cosign for you and you’ll be set.
Credit cards usually start off with a lower credit line but can climb up as soon as you start gaining some credit history. This is good because they basically grow in relation to your income and spending.
Just remember that you’ll be fully responsible for paying off any purchases you make.
Find the Perfect Credit Card
You don’t have to stick with a student card. There are plenty of different credit cards out there that offer good start off rates, rewards, and other benefits. Remember, there’s plenty of other banks and credit unions that offer different perks. You don’t have to stick with the same bank your parents bank with.
Retail cards are also a good option to consider. These cards might offer fewer perks and spending limits, but they can raise your credit score by regularly paying off your bills.
Don’t Use More than 50 Percent of Your Credit Limit
Although student credit cards are a good way of initiating your credit life, overspending can hurt your credit. Don’t get carried away, remember that you’ll owe any money you spend using a credit card. Lowering your balance on your credit cards will help boost up your scores every time a statement comes around. We recommend that you keep you always use up less than 50 percent of your credit limit to help save you from massive credit falls.
Become an Authorized User on a Family Member’s Credit Card
Consider becoming an authorized user on a responsible family member’s credit card. The only thing the primary account holder has to do is add your name on to their credit card account. Just make sure that both parties are equally responsible and talk before every purchase.
Not only will this allow you to make purchases with their credit card, but you can also go half and half on payments. This can help you and your family member boost your credit scores at the same time. It’s also a good incentive to spend responsibly while you’re in your college years.
Pay More Than the Minimum on Credit Cards
If you can’t afford to pay off the remaining balance on your credit cards, try paying more than the required minimum payment. It’ll help speed up the process of paying up your debts and add some positive ratings to your credit score. Although it might be tough for a college student, try adding as much as you can to your credit card payment and you’ll notice a difference after a few months.
Avoid Hard Inquiries
Always be financially prepared when you’re applying for a credit card, home loan, or car loan. This means making sure you have a stable job and income, good payment reports, and low amounts of credit card debt. What usually happens is that banks, credit unions, and other lenders look at all of those points and make a final decision based on the check. If the lender ends up denying your application, it can show up as a hard inquiry on your credit score, having a negative effect on your FICO credit score.
Avoid Applying for Several Credit Cards at Once
Another thing to avoid when building college credit as a college student is applying for too many credit cards in a short amount of time. Doing so can result in a significantly lowered credit score for those with a short credit life. Instead, take your time before applying for another credit card. Besides, the fewer credit cards you have as a college student, the better for you. Having more cards raising the risk of entering larger amounts of debt that can be tough to get out of.
Look Into Getting a Secured Loan Using a CD or Savings Account
If you have a savings account or Certificate of Deposit (CD), you can borrow a secured loan against your money to boost any credit score. A secured loan allows you to pledge something you own in return for a lower rate or a larger loan amount. The only downside is that lenders can seize your asset if you don’t pay on time, lowering your credit. You also might not have any access to your savings or CD until you finish paying off the loan, so make sure you don’t need the money for the meantime.
Your best bet is checking with credit unions because they’re known for helping borrowers with poor or no credit, and provide affordable loans.
Only Use Your Credit Card for Small Purchases
Limiting your credit card purchases is a great way to take care of your credit during your student years. This helps keep your account active and prevent it from hurting your credit score due to inactivity. Small purchases also allow you to keep your credit card balance low and doable. Try using your credit card for small payments like Netflix, Spotify, or Hulu (if you use them). You can also buy something small for your apartment. You’ll be more likely to pay off your balance each month, which can help you stay in the green zone.
Don’t Let Your Credit Card Sit at Home
Avoid not using your credit card for a long time. If you don’t ever swipe your credit card, there won’t be data for credit card companies and bureaus to report. Make sure you are using your card on something. Even if it’s just for a monthly visit to the grocery store, something is better than nothing.
Pay All of Your Bills On Time
Don’t ever miss a bill payment! Many people don’t know that those late payments might just be lowering their credit score. All three major credit bureaus collect and list payment information on credit reports. As a student, you wouldn’t want to have your credit ruined over some late water payment. That’s why it’s extremely important to pay all of your bills before they’re due.
This is the same for whenever you start paying off student loans in the future.
Don’t Cosign For Anyone Else
It can be really for your friends and family to approach you to co-sign for them. The truth of the matter is that you’re barely starting your credit life as a student and you wouldn’t want to risk anyone else hurting your credit score.
No matter how close you are to someone, there’s always a chance that they can commit some financial mistakes that can hinder your credit score. As a student, you wouldn’t want to take that risk because it can take some time before you recover from the hit.
So, if you’re going to sign for anyone else, make sure you’re graduated and have a backup plan in case they make some bad mistakes. This isn’t to say that something bad will happen, but it never hurts to be safe.