So you’re a college student and you understand the significance of your credit score. You realize that you will need a good credit score when it comes time to obtain a mortgage, apply for a lease on an apartment, finance a car, and even get a job. And you also realize that these are all significant parts of a happy life in your twenties.
There’s only one problem: You have no clue how to build and improve your credit score rating while still in college.
Well, you’ve come to the right place. Here are 6 valuable tips to help you build your credit score as you attempt to survive Sunday morning hangovers and Monday morning exams:
1. Get a credit card
Comparing credit cards can be time consuming, but it’s essential for finding the right one for your situation. If you’re in college, a student credit card with a $500 limit is all you need to get started. A small limit, which you must stay on top of throughout your college career, will help you build up a decent credit score for when you graduate. My word of caution is that you must remain disciplined and pay of your balance in full every month. If you don’t, not only will you hurt your credit score, but you will also find yourself in significant debt.
2. Get a job
Due to the new Credit Card Act fees and restrictions, it’s not so easy to get a credit card anymore. You can’t just fill out a few forms, get your free T-shirt, and go home with a shiny new card. If you’re a college student under the age of 21, you’re going to have to prove employment or find a co-signer to vouch for you. This is why finding some sort of work is important in college if you want to start to build any credit at all. Besides, without a job, how are you going to pay off your credit card balance?
3. Automate your payments
You can save yourself lots of hassle – and late fees – by automating your payments. I’ve done this with my gym membership, cell phone bill, and cable bill. All of these charges are charged automatically to my credit card every month. When my credit card statement comes in, I pay it off. The benefit of this is that you build a credit history over time and you have proof that you’re responsible with your credit card.
Keep in mind that automating your credit card payments is not an excuse to ignore your statements. I always check my statements and bills to ensure that I’m being charged accurately.
4. Always make payments on time
It’s very important that you don’t miss payments or are ever late. Late payments will not reflect positively on your credit and will pretty much cancel out any improvements you’ve made to your score while in college. This is because 35% of your credit score is based on your payment history. Late payments = poor credit history.
5. Always pay off your balance in full
If you only make the credit card minimum payment, then you are guaranteed to carry a balance for who knows how long. Making the minimum payments means that you have an outstanding balance and will have to deal with high interest rates, which is never a good idea. This will ultimately hurt your credit score. Besides, do you really need credit card debt on top of that student loan?
6. Increase your credit limit
This tip will probably be a bit controversial. As you become more comfortable managing your finances, you’ll eventually get comfortable with your credit card. At this point, I suggest that you increase your credit limit. How do you go about increasing your credit limit? It’s easy: just ask. If your credit card company thinks you’re a good candidate, they will increase your limit with no more than a phone call. The benefit here is that 30% of your credit score is based on the percentage of your available balance that you are currently using (the lower the better). So even if your spending habits don’t change, if your available credit increases, then this percentage will drop significantly and lead to a healthier credit score.
What are you doing to improve your credit score in college? Please share your strategies and tips!
(photo credit: tonystl)
