7 Things College Students Should Know About Credit
College can be an excellent time to establish credit. Opening a credit card when you are young can help you attain a solid credit score in the future. The earlier you establish credit, the longer your credit history becomes and credit score calculators consider this a positive.
Consider using these sensible techniques, adapted from Farnoosh Torabi with mint.com, to help establish credit when you are young.
1. Student loans can help you establish credit.
Student loans and mortgages, which you pay back in equal installments every month, are what are known as installment loans. Be sure to be current and on time with your student loans. Even though student loans are hailed as “good debt,” a missed payment or delinquency can make it difficult on future financial endeavors.
2. Credit cards are not free money.
It’s easy to spend too much when using a credit card. It seems to be a lot less painful than using cash. If you’re prone to impulse purchases, avoid keeping the card in your wallet. Leave it in a drawer at home. Spend only what you can pay back in full. Pay monthly utility bills with your credit card, and schedule an automatic transfer from a checking or savings account to pay these charges by the due date. This will allow you to use the card, and allows you to set sensible guidelines for using your card, as you continue to establish good credit.
3. Bad behavior can haunt you for years to come.
Just like with student loans, one missed payment on a credit card can ruin your credit report for years. After you have graduated and long forgotten about the incident, a potential lender or landlord might take that into account as they review your credit report. They may think twice about lending you money or even offering you the keys to a lease. Schedule automatic payments on your credit card each month avoiding a missed payment and late payment fees.
4. Talk to a parent or older friend before opening a card.
Before opening a credit card, speak with someone older and more experienced. Speak with a parent or older friend for their advice. How did they establish credit? What credit card do they have and why? Study credit card offers to find one that will fit your needs.
5. Can’t qualify? Avoid cosigning with parents.
Consider becoming an authorized user on one of your parent’s cards. Their good behavior with the card – paying on time and in full – is something that gets reported on your credit report and boosts your credit health.
As an authorized user you can receive your own copy of the credit card with your name on it. Make a plan with your parent to know how much is OK to spend on the card each month and how to pay back your portion.
6. Avoid applying for multiple cards.
Each time you apply for credit, the lender or card issuer reviews your credit profile by pulling your credit report. This is considered a “hard inquiry,” and multiple hard inquiries can injure your credit score by several points.
Hard inquiries usually lose their impact after a year, but better to do your research and be very selective, and apply for the one card you have a very strong sense for which you’ll qualify.
7. Check your credit report. It’s free!
You can review your credit report at no cost each year. It is your legal right to review your credit report from each of the three major credit-reporting agencies. Visit annualcreditreport.com to download your credit report from Experian, Equifax, and TransUnion.
It’s important to review your credit report periodically to ensure that your credit usage is being reported accurately. Review all the types of credit listed on the report and the status of each credit card or loan.
Adapted from mint.com, Farnoosh Torabi, Mint Life