Here are a few totally “doable” ways the average college kid can build and maintain their credit:
The phrase “credit card” is well known and is famously (or infamously) known for it’s ability to contribute to one’s credit score. Though a credit card may look like simple and precious piece of plastic, its power is tremendous. Credit cards are given to us with a credit limit. The money that is used within the limit must be paid back to the lender, but not necessarily all at once. Credit card companies issue a monthly bill, that allows you to pay on your credit card in increments. For students who have little to no credit, it is advised to apply for a credit card with a low interest rate and a low/no annual fee. Additionally, it is advised to never spend over thirty percent of your credit card’s limit. Failure to pay your credit card bill on time or the failure to pay on your credit card at all, can and will result in a blow to your credit score.
As a young adult, the thought of having “free money” can be enticing. Always keep in mind that the money you are spending on your credit card is not “free”, and you are responsible for paying it back. So when the bill comes, show your financial trustworthiness by paying the bill on time and more than expected if possible.
Secured Credit Cards
Are ya’ still a bit iffy on getting a credit card? A secured credit card is a great method that can be used to either build or rebuild your credit. A secured credit card is different from a traditional credit card, because a it requires you to provide a security deposit for your card. With a secured credit card, you simply follow these steps: 1. Apply for a secured credit card of your choice, 2. Once approved, put down a security deposit of however much your credit limit is is (e.g.: if your credit line is $300.00, then you would deposit $300.00 of your own money), 3. Use your secured credit card, responsibly, and 4. Pay your monthly bill on time. You may be thinking, well how is this different from a debit card? A secured credit card is reported to the credit bureaus and showcases your financial responsibility. This helps you to build or establish your credit score, by showing your ability to pay your monthly bill on time.
Department Store Credit Cards
“Would you like to apply for a (insert department store here) credit card, and save (insert percentage amount) on your current and future purchases?”. Department stores, such as Macy’s and Target, typically offer store credit cards. Applying for and obtaining a store credit card would not only help you save money each time you shop at that particular store, it will also help you build your credit. Now you can save five percent on that shirt you have been eyeing and enhance your credit score, at the same time! Just be sure to pay the credit card bill on time!
Becoming an Authorized User on Your Parent’s’ Credit Card
Do you not trust yourself with a credit card? If you answered “yes” in your head, then you may be interested in building your credit without having to actually use credit. If your parents are financially responsible and own a credit card, you could be added to their credit card as an authorized user. Whether or not you choose to directly use the card is a conversation between you and your parents. As long as your parents use the credit card and pay the bill on time, your credit score will gradually show improvement. Make sure to check with the creditor first to see if they report authorized users to the credit bureaus.
Pay Your Monthly Bills on Time
Simply put, pay every single bill on time. Always pay on time, always pay on time, always pay on time! Get it? Got it? Good. This point cannot be stressed enough. Not paying your bills on time is a danger zone that you do not want to enter!
Think of your credit score in terms of food; in college, many of us are striving to turn our Ramen Noodles into filet mignon. In terms of your credit, strive to turn your current score (which, for many of us, is a low score) into an excellent score. With that being said, be smart, spend wisely and pay every single bill on time!
Lizzie Lou the Credit Guru Suggests that You Build Your Credit By:
- Applying for a credit card, without an annual fee (or with a relatively low annual fee) and a low interest rate.
- Always pay your bills on time! No matter if it’s a cable bill or a credit card bill, never miss the payment! Paying your monthly bills on time is one way lenders determine your financial responsibility.
- Know the difference between a soft inquiry and hard inquiry. A soft inquiry is when you review your credit score for your own education use, by using a free website such as Quizzle. A hard inquiry is when a potential lender pulls up your credit score, such as a car dealership. While a soft inquiry will not deduct any points from your credit score, a hard inquiry will decrease your credit score.
- Check your credit report monthly to make sure there are no inaccuracies and all your accounts are being reported.
Phoebe the Financial Foe Urges You to Damage Your Credit By:
- Opening numerous lines of credit; doesn’t “free money” sound sweet to the ears?
- NEVER, EVER pay your bills on time! Honestly, you don’t have to pay back the money that lenders lend to you. What’s the worst that could happen?
- Do you honestly need a credit report? Once you get to the dealership, they will pull up your credit report anyway.