Just because you’re in college doesn’t mean it’s too soon to start thinking about your credit score. In fact, the sooner you start building your credit score, the better. A bad credit score or even just a lack of credit history can hurt you in several ways in the future. You may not get that apartment you like if your credit score isn’t high enough. Need a new car? Expect to pay considerably more in interest on an auto loan with no credit history to your name.
Building credit as a student isn’t difficult. If you approach it the right way, you’ll have a dramatically higher credit score by the time you graduate.
1. Pay Bills on Time
If a bill is in your name, then paying it on time is important for your credit history. Set up automatic bill payments if necessary, just make sure that you keep enough money in the account that you use to pay the bill.
2. Apply for the Right Credit Card
Using a credit card is one of the best ways to build your credit score. Look for a card with no annual fee so it doesn’t cost you any money. It may be difficult to get a credit card as a college student, so consider asking your parents to co-sign if credit card companies deny your application.
You won’t build your credit if you never use your credit card. The important thing is that you don’t overspend. Keep your financial habits the same, and only buy what you can afford at that time. Treat your credit card exactly like you would your debit card.
4. Pay Your Balance in Full Every Month
Don’t carry around a balance on your credit card. Every month you don’t pay it off, the credit card company will add more interest charges onto that balance. Get into the habit of paying that bill down to zero every time so you never pay a cent in interest.
5. Obtain Your Credit Reports
Everyone has three credit reports, one each from Experian, Equifax, and TransUnion. You’re able to request one free credit report from each of those credit reporting agencies per year. Do this every year to ensure that the information is accurate and that you haven’t been the victim of identity theft.
6. Dispute Errors on Your Credit Report
Errors on your credit report can lower your score. If you spot any, contact both the credit reporting agency and the creditor to dispute the error. Alternatively, you can hire a credit repair company to do this for you.
7. Don’t Co-Sign for Anyone
When you co-sign for someone, you’re putting your own credit on the line. Don’t risk your credit by co-signing a loan or any sort of application, no matter how much you trust the applicant, as it’s not worth jeopardizing your financial future.
8. Avoid Closing Credit Card Accounts
When you close a credit card account, this reduces your available credit, which can lower your credit score. It’s smarter to only open credit cards that you plan to use. As a student, start with one credit card to avoid running up balances on multiple cards.
A hard inquiry occurs when an individual or business runs a credit check on you. You may have to provide authorization for these if you’re applying for a loan (such as a student loan or an auto loan) or a new credit card. Too many hard inquiries can lower your credit score. One way to reduce their impact is to do anything that requires these hard inquiries within a 14-day time period, as all the inquiries within this period of time will only count as one inquiry.
10. Keep Your Credit Utilization Under 30 Percent
If you do end up with a balance on your credit card, don’t let it exceed 30 percent of your available credit. Once it does, it will lower your credit score. As long as you maintain a 30 percent or lower credit utilization, your credit score won’t be negatively affected.