Having good credit after graduating from college is extremely important. Your credit score can affect your ability to buy a car, sign a lease on an apartment, rent or purchase furniture for your home, and even get a job, so it is crucial that your credit be healthy.
But we’ve all heard the saying “You need credit to get credit,” so as a college student, where should you start? Is it just a hopeless cycle of being rejected for credit because you have no credit history? Not necessarily. There are a number of things you can do as a college student to start building good credit before you move on to life after school. The tips below for building credit should help you to make your transition into adulthood a smooth one:
Piggyback with your parents.
Piggybacking is one of the easiest and most effective ways to earn credit as a college student. Unfortunately, most students are not able to be approved for their own credit cards, especially given recent legislation that raised the minimum age for most cardholders to 21. With the piggybacking method, though, you can start building credit without needing approval on your own.
Piggybacking operates by linking you to one of your parent’s credit cards. They simply add your name to one of their credit accounts, and your name is attached to that part of their credit history, whether you actually use the card or not. This method is extremely effective because unless your parents are financially irresponsible (in which case, avoid piggybacking at all costs, as it could actually affect your credit negatively), knowing that your financial future is tied to theirs gives your parents extra incentive to be responsible with the credit card to help you improve your credit.
If you can get a card, get the right one.
If you are 21 or older or have found some other way to be approved for your own credit card, be sure to select the right one. Some credit card companies offer cards designed specifically for students. Although most of these cards have low credit limits, they are still a great option because most student cards have low interest rates and no annual fees, two things which are extremely important for college students.
One thing to be wary of when searching for a card is a card that offers a rewards program. Although some are a great choice and offer valuable rewards, some rewards cards are exactly the opposite. These offer useless rewards and prizes at a heavy price, a price which you pay in the form of annual fees and exorbitant interest rates. So if you do opt for a rewards card, be sure to read the fine print to ensure that the rewards balance fairly with any extra fees or requirements.
Be responsible with your card.
Credit card companies want you to carry a balance. How do you think they make their money? They certainly aren’t giving you a line of credit as a favor! If you carry a balance, credit card companies can charge you interest on the balance you’re carrying. If you pay off your balance each month, though, credit companies make minimal profit off of you, relying on their take of the credit card fees merchants pay for each purchase you make with your credit card.
If you can’t pay off your balance in full each month, at the very least, meet your minimum payments. When you miss a payment, credit card companies make money on penalties and fees. What’s more, they often also increase your penalties, meaning that the next time you miss a payment, they’ll charge you even more as punishment. Don’t shell out money for silly penalties; just pay your bill on time every month.
Paying your bill also saves you from having to explain yourself to other creditors later on in life. Think about it: If you can’t meet the minimum monthly payment on a credit card with a $1,000 limit, how do you think a bank will view you a few years down the road when you’re asking to borrow ten times that amount for a new car? Avoid this crisis by paying your bill on time each month.
In the end, building good credit in college is about being responsible with your money. If you have your own card, you’ll need to learn self control and responsible financial practices. The payoff, though, is well worth it because a solid financial background can help you get a leg up after graduation and well into the future.
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