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How to Build a Good Credit Score in College

July 5th, 2014 8:24 PM by Jackie A. Graves, President

The college years can be a good time time to start building a good credit score. Building a good credit score early can make it easier to get established in the real world once you graduate. You’ll need a good credit score to purchase a house or car or even to rent an apartment. Many employers consider credit history, not necessarily your credit score; so good credit is often necessary for getting your first real job.

Be aware that there's a downside to trying to build your credit score while you're in college. Your limited income and increased pressure to spend may lead to big credit problems including debt and damaged credit. If you decide to get a credit card while you're still in college understand the risks involved.

Building a good credit score isn't hard, if you handle credit wisely: borrow only what you can afford to pay and pay it back on time. It also means avoiding critical mistakes that can damage your credit for years to come.

Get a job. Before you consider a credit card, you should have a steady income from a work study, part-time job, or even a full-time job. Without a steady income of your own, you probably won’tqualify for a credit card – at least not without a cosigner. You can’t realistically expect to pay back a credit card balance if you don’t have a regular income.

An allowance from your parents doesn’t count as income as far as credit cards are concerned. And you can’t necessarily depend on your parents to repay your credit card balance. What if your parents’ financial situation changes and they can no longer afford to pay your credit card payments? You’ll have to start paying on your own or deal with the effects of missed payments.

Get a credit card and use it wisely. Telling college students to get a credit card sounds like pretty bad advice, especially considering CNN Money’s report that 2013’s college graduates left school with about $3,000 in credit card debt. But it’s impossible to build a good credit score without a positive history of borrowing on your credit report. It is, however, possible to have a credit card, use it, and not accumulate thousands of dollars in debt. Using your credit card wisely and responsibly is the key to building a good credit score and staying out of debt.

Resist the temptation to live above your means. Often college life comes with huge pressure to keep up appearances. You may feel tempted to use your credit card to buy new clothes or shoes, buy dinner for your friends, or to fund weekly bar crawls. Your credit card is not a way to buy things you couldn’t otherwise afford. If you abuse your credit card by running up a big balance and not paying it back, you’ll ruin your credit score before you ever get a chance to benefit from it.

You have a job, you should have a weekly or monthly budget to plan out how you’re going to spend your income, if you don't already have one. Remember that your monthly credit card payment is an expense on your budget, not a source of income.

Don’t max out your credit card. The temptation to splurge with your credit card, especially when you have so few other responsibilities, is almost too great to resist. But you have to resist it. If you don’t feel like you can be disciplined enough to spend just a little bit, don’t get a credit card just yet.

When you are ready for the financial responsibility of credit, never charge more than 30% of your credit limit. That rule of thumb will keep you from running up a balance you can’t afford to repay.

Don’t open up too many accounts. One credit card is enough to start with. Multiple credit cards are difficult to manage, especially when your primary concern should be your college courses. Plus, the more credit cards you have, the easier it is to get into debt. Spend a few years getting used to having a single credit card and wait until you’re established after graduation to consider opening an additional credit card.

Don’t borrow more than you can afford to repay. Credit cards aren’t the only debt products that affect your credit score. Loans, like student loans and car loans, can also affect your credit. A rental lease, which may or may not be reported to the credit bureaus, can also be considered a type of loan.

Before you take on obligations that require monthly payments, consider your ability to repay. You may be able to rely on your parents to pay for some of your expenses, but remember that their financial situation can change without notice. You may be able to work to cover some of your expenses, but consider how many hours you have to work to cover your expenses. Don’t forget that the more you work, the less time you have for school work.

Make your payments on time. The biggest part of your credit score is based on how often you make your payments on time. Aim for 100% on time payments on all your bills. Once you’re 30 days late on your debt obligations, the credit bureau is notified and the late payment goes on your credit report. The more late payments you have, the more your credit score is hurt.

Certain payments, like utilities and cell phone bills, aren’t routinely reported to the credit bureaus. But, if you fall far behind on these and they’re sent to a collection agency, the collection account could go on your credit report. A collection is one of the worst things for your credit report. Avoid them at all costs.

Be careful who you choose as roommates. Your roommate doesn’t have a direct impact on your credit score, but your roommate’s payment habits can impact you. For example, if your roommate doesn’t pay their share of bills that are in your name, your credit score could be hurt. Or, if your roommate skips out on bills, it could strain your finances making it harder to pay all your bills.

When you move out, turn off all utilities in your name and have your name removed from the lease. Your former roommate may not be as diligent about paying bills once you’re gone and any unpaid bills will come back to haunt you.

Don’t skip the rent or break your lease. More apartment complexes are using services that report to the credit bureaus. That means your rental payments could impact your credit score. Timely payments will help your score and late payments could hurt you.

Breaking a lease or leaving behind an unpaid balance will impact your credit and could make it harder to rent a home or buy a house once you graduate.

It’s Ok to Wait

There’s no rule that says you must have a good credit score when you graduate college. Some things may be easier if you already have good credit, but trying to establish good credit while earning a degree and figuring out young adult life is tough. It’s much better to start out with no credit at all, than to start with a bad credit score that was ruined because you started too early.

Your First Credit Card

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Posted by Jackie A. Graves, President on July 5th, 2014 8:24 PM

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