College is an important time for the start of adulthood, of which finance is a part. You need to understand how to build good credit in order to have positive financial prospects for the future.
An adult life begins for college students immediately with large debts. This is not the best start for adult financial life, but most students have no other choice.
To answer the question how to build good credit for college students, we made a selection of all the necessary information for this right here. Read on to find out more.
What is a credit and why do we need a good credit
A credit is a level of trust between a lender and a borrower. When you sign an agreement with a lender that he lends you money under certain conditions, this means that the lender gives you a certain amount of trust.
When you have good credit, this means that you are a responsible borrower with less risk and lenders are more willing to lend you money, while setting better conditions for you.
The level of creditor confidence in you is expressed in a credit rating that is made up of credit scores. Your every credit action affects your credit score, reducing or increasing it. The greater your credit score, the more good your credit and lenders are willing to lend you more money.
The maximum credit score is 850. This means that the borrower has an excellent credit and the lenders are ready to borrow large amounts at minimum interest. However, to achieve this level, you first need to figure out how to build good credit.
The credit is being built gradually, therefore, in order to earn an excellent credit, it will be necessary to use several different loan products, avoiding overdue payments or a large increase in the balance on a credit card.
While you are a student, you most likely do not spend a lot of money and maybe even do not use loans at all, however, the sooner you begin your credit history, your credit score will increase more.
When you graduate from college, you might want to make more expensive acquisitions, such as a new car or house, for example. Also, many employers will look at your credit, especially if the work concerns money.
You may want to start a family that will need to be settled somewhere and which will require additional expenses. Then you need good credit, which is not built in one day or week.
Credit scores are calculated based on information that goes to several US credit bureaus. Your credit activity is calculated in each of them according to its method, but your credit scores will not differ significantly in different bureaus.
The first and most important factor affecting your credit rating is how you make payments on your loans. Timely payments have a positive effect on your credit rating, because in this case credit scores are added to existing ones.
Then it takes into account the total amount of your debt on all loans that you have. Also, the length of your credit history has a significant effect. You can register yourself a credit card as early as possible and start using it little by little, paying for it with small purchases.
How to build good credit
When starting to use a credit card, do not use more than 30% of the credit limit allocated to you. Pay small expenses and always repay the debt in a timely manner. If you do not always have the opportunity to fully repay the entire debt each time, then make at least the required minimum payment not later than the deadline.
Using most of the credit line, you quickly increase your credit card debt and your credit score gradually decreases, even if you make timely minimum payments. By the end of the course, for many students, credit card debt already grows to more than three thousand dollars.
This is a rather bad indicator, especially for the beginning of an independent financial life. If you made overdue payments, then you may have to restore your credit rating in a few months, or maybe even years, depending on your situation.
The bulk of credit card debt quickly grows due to the variable interest rate and penalty fees charged on late payments.
Start using a credit card
Usually, starting to use a credit card makes it easier for college students to start building their credit. According to some studies, students who start their credit history with a credit card have a higher credit rating.
Many credit card issuers issue special credit cards to begin independent financial life of students.
Use your credit card carefully
Starting an independent life is always interesting, but how to build good credit, if there are so many temptations, especially for young people. It is always worth remembering that responsibility also comes along with opportunities, so always try to keep you in hand and in general the situation under control, even at the sight of a very desirable thing.
Try to calculate your monthly budget and strictly adhere to it, without going beyond it. Most of your monthly expenses can be calculated and taken into account and on this basis form your monthly budget, leaving a small margin for unforeseen expenses.
This will help you keep your finances under control and successfully build your prosperous financial future.
Do not become a cosigner
Try not to act as a guarantor and a cosigner, as you risk your credit rating if the other person fails to fulfill their obligations. Of course, people need friends and should try to help them whenever possible, but don’t risk your reputation for another person, especially when you don’t know him for so long.
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Try to manage one card
Many credit card companies try to lure young customers, such as college students, with various privileges and attractive benefits. But how to build good credit, if you bite on every such bait and register multiple credit cards?
Try to choose to start one, the most suitable for you credit card and dispense its needs with one. A lot of new credit cards will noticeably lower your starting credit rating. In addition to the possible emergence of many debts you will be very difficult to handle.
Choose a credit card with a minimum annual interest rate and carefully monitor your expenses that you make with it. This will help you avoid confusion and a rapid increase in debt.
Learn to deal with your finances wisely right away and then you will understand how to build good credit and easily do it over time.
You can negotiate with your parents or other members of your family, whom you trust to co-own one credit card. You become an authorized user and your credit rating will also grow as your co-owner’s credit.
At the same time, it can be a good opportunity for parents to keep track of their child’s expenses. Only you must trust each other with the person with whom you will be an authorized credit card user.
Report rental payments to the credit bureau
If you are a student, then you have another great opportunity to grow your credit rating by telling the credit bureaus about your payments for renting the housing you live in. To do this, you do not need to register a credit card or take a loan. Just sign up for a program like RentTrack and get the benefits of a credit score without the risk of not paying a loan.
Monitor credit reports
Credit reports are available to every US citizen free of charge once a year. But this does not mean that you can check them only once a year. Many credit card issuers now offer constant monitoring of your credit rating or regular weekly updates of this information.
Information in different credit bureaus comes from different sources, so often there may be errors. You can always challenge erroneous information to improve your situation and compensate for the loss of your credit score.
Work on your financial habits
To successfully start your independent adult life before you start using loans, start calculating your expenses and income. So you can see the full picture, to understand what you can count on.
Make a budget, determine the expenses that you can reduce or eliminate, and you will see additional possibilities for yourself. It is also advisable to leave space for savings, so that you always have a reserve in case of unforeseen situations or that you can set yourself financial goals.
Credit cards and student loans are often the first loans that young people deal with, and especially college students. Using budgeting and getting answers to many questions here, you can already understand how to build good credit to secure a prosperous future.
Get used to this approach in managing your finances, try to always pay all your bills and taxes on time and you will get a high result in building your credit rating.
College time is a great time ensuring the quality of future independent adulthood. Use all the information that we have prepared for you here and you will have a financially prosperous future.
Now you know how to build good credit and that is quite in your abilities. After graduating from college, you will have a great start to a successful life.
Read our financial blog to find out more about credit, loans and everything related to personal finance. If you need a student loan or personal loan, you can fill out the application form on our website to receive a lot of offers from different lenders in return.