If you’re a student preparing to enter adulthood, starting to build your credit score can provide you with a considerable financial head start. In this guide, we will explain why starting early is so beneficial and offer some practical advice to help you create a good credit history – and the importance of maintaining it.
Understanding Credit Fundamentals
This financial trust, distilled into a 100-point score, is known as credit. It determines whether you can borrow money and, in some cases, get a job. For recent graduates, building a solid credit score as soon as possible can greatly simplify their transition from student to adult.
Acquiring and Using a Student Credit Card
One of the easiest ways to begin building a credit history is through a student credit card or a card specifically designed for young people with little to no credit history. Look for a no-annual-fee card with low interest rates and generous rewards such as cashback on purchases. The best strategy for building credit is to use the cards regularly for small purchases and pay the entire balance off every month – by doing so, your card usage can stay under 30 percent of your total credit limit.
It is not always easy to build up your credit at the same time you are building up your student loan. There will always be assignment deadlines, tests, school, chores, and, ultimately, life. You may need to start using a top-rated paper writing service to offload your coursework. You can go on managing your credit, paying bills, and working on other tasks, while your academic performance remains on track.
Considering Secured Credit Cards
A secured credit card is a good alternative for students who don’t qualify for a student credit card. The uniqueness of secured credit cards is that they’re backed by a cash deposit – often equal to the credit limit – helping the user avoid accumulating unmanageable debt and build credit. Secured credit cards have the following advantages:
- Low risk: The required deposit ensures that spending is within manageable limits.
- Credit-building opportunity: As long as the card issuer reports to the major credit bureaus, responsible use will help improve your credit score.
- Controlled spending: With a predetermined credit limit, it’s easier to avoid overspending.
- Path to unsecured cards: Many secured cards allow for an upgrade to an unsecured card after responsible use.
Since the secured card requires deposits, borrowers have one-time access to all their own money and utilize the card as currency at a minimum of 100 percent of their deposit. By playing by the rules, students have the opportunity to build a credit profile and learn responsible credit habits. From a lender’s point of view, a secured card is a financially intelligent decision, especially for the fiscally naive.
Leveraging Authorized User Status
Another option for building credit is being an authorized user on a relative’s card. It gives you the benefits of the primary cardholder’s credit habits while you aren’t on the hook to pay the bill. A strong relationship is a must, and you and your relative must communicate extensively about how you’ll use the card and spend within your limits to ensure that it’s a win-win.
Managing Student Loans Effectively
Perhaps most importantly, student loans make up 12 percent of your credit score. A history of on-time payments will improve it, while late or missed payments can drag it down. One of the best ways to ensure that your loan doesn’t negatively affect your credit is to start repaying it before you even graduate, even if it’s just a tiny amount at a time. It tells future lenders that you are a responsible borrower, which might go a long way in helping you land loans and lower interest rates.
Monitoring and Maintaining Your Credit
Consumers need to stop waiting for someone else to watch their credit score and instead start monitoring their own. Free credit-tracking services exist that will alert you if some major change occurs in your score. That’s an important safeguard against fraud. At the very least, you can catch these things early before too much damage is done. If you want to look at your report itself, you are entitled to a free copy of your credit report once a year from each of the three major credit bureaus (Equifax Experian, and TransUnion). That can help you make sure all of your financial information is current, and can also help you to identify any problems you might want to work on right away.
Building Towards Financial Independence
Establishing credit while in school positions you to build habits that lay a base for your financial health and readiness for the more significant investments of adulthood. For any aspiring financier, that means living within your means, tracking your spending, and committing to decisions that will advance you toward better economic opportunities. This is far more than just preparing yourself to borrow money or obtain a credit card. It is a base that will help you sustain financially healthy habits for the rest of your life.