Tips for Establishing Good Credit As a Student
Establishing good credit as a student will potentially help your finances as you begin your life and career. Cultivating healthy credit habits early on will better prepare you for your future.
Establishing Good Credit as a Student
Virtually everyone recognizes the value of building credit. People with good credit have an advantage securing low-percentage loans, reasonable insurance rates and other financial benefits. For college students, though, doing what it takes to build credit can seem daunting. Learn ten tips that put good credit within reach.
1. Get a credit card.
A credit card can be your most effective tool for building credit. Using a card responsibly over a long period of time shows creditors that you're able to effectively manage your finances. You'll be a more attractive candidate to lenders for future lines of credit if you live within your means while holding a card.
2. Do your homework on available cards.
When it comes to credit cards, not just any one will do. Cards come with different interest rates, credit limits and rewards. Find the card that's best for you while avoiding annual fees or service charges. Remember that retailer cards and appealing rewards programs often come with higher interest rates that can diminish their benefit.
3. Become an authorized user on a parent credit card.
If you have no credit and no steady job, which is true of many students, it may be hard to get a credit card. One solution: get on a parent's account. A lender can issue you a card for use around campus. This can be an especially effective method for building credit given that a parent's positive credit history may help raise your FICO score.
4. Get a secured credit card.
If your parents don't have solid credit or they are unwilling to make you an authorized user on their account, you might get a secured credit card. This type of account allows you to deposit cash as collateral against your purchases. Responsible use of a secured card can compel lenders to offer you a standard one.
5. Don't apply for a lot of cards at once.
One or two credit cards can be very useful in helping you to build credit. Applying for any more than that in a short span isn't a good idea. If you apply for a lot of cards at once, lenders may think you're in a desperate financial situation. The perception you aren't living within your means can make you seem a credit risk.
6. Use your credit card regularly.
Just having a credit card won't allow you to build credit. It's important to use your card at regular intervals. What creditors want to see is that you can use credit responsibly - not, for example, immediately maxing out a card with a big purchase. Instead use your credit card for smaller, periodic necessities.
7. If possible, pay off your balance each month.
Part of showing responsible use of a credit card is making payments on your balance. Most experts suggest paying off the full balance each month; any remaining amount owed will accrue interest. Make sure to pay on time. Payment history makes up a considerable portion of your overall credit score.
8. Don't use credit cards to finance your education.
Carrying a high balance on credit cards indicates to lenders that you may be a credit risk. Cards, then, aren't a viable way to pay for your schooling. If you need more money to attend school, federally financed or private student loans are better options. A benefit of this approach: paying off loans can help you build your credit.
9. Pay your bills on time.
Credit card use and loan repayment are only two indicators lenders look at to establish your credit-worthiness. Your payment history for utilities and other bills can also be used to gauge whether you are a good candidate for credit. Paying bills on time can help prevent you from one day being turned down for credit.
10. Check your credit report at least once a year.
Credit fraud can be disastrous to your credit in the near- and long-term. While you can retroactively dispute unauthorized charges, fraudulent activity can be difficult to prove, and lenders may perceive you as a risk. Be proactive in protecting your credit by requesting your FICO score at least once a year from the three main credit bureaus (Equifax, Experian and TransUnion).