College is a difficult time. There’s classwork to keep up with, assignments to research, exams to pass, tuition fees to pay and, probably, a part-time job to fit into an already busy schedule. So, why would you want to complicate matters even further by taking on the challenge of improving your credit score?
The basics of a good credit score
While standards do vary from one leader to another, according to Credit Karma a rating of around 700, on a credit score scale of 300 to 850, is where you want to find yourself, even if you’re still in full-time education. It’s true that buying a home is something you’re most likely going to leave for later on in life, but there’s more to a good credit score than the chance to access favorable mortgage rates.
As a student, you’ll want to benefit from the best student loan interest rates possible, you might want to consolidate your loans when you finish studying and you may even find that a good credit score helps you to secure a top job after graduation. With that in mind, what can you do to actively help improve your credit score while you study?
Get smart with credit cards
One of the simplest ways of building a good credit score in college is to start using a credit card. Even so, there are a number of things to bear in mind. First, it’s important to avoid applying for multiple cards at once. Too many inquiries and applications can actually lower your score, so it’s best to wait for a card with the right benefits and perks to come along, including cards with low interest rates and no annual fees.
Once you have your credit card in your hand, make good use of it. A credit card that’s left to rot away at the bottom of a drawer isn’t going to do anything positive for your credit score. A good way of registering regular activity without getting yourself into financial trouble is to use your card for small purchases – consider covering your weekly shop, electric, water and phone bills – and set up direct debits to pay off monthly fees in full.
There’s also the option to become an authorized user on one of your parents’ cards. Naturally, you’ll need to respect all payment fees and dates. Irresponsible financial choices that put your parents’ credit score at risk would not be a good idea, but the advantage of tagging on to their card means you can benefit from the length of their positive credit history and boost your personal score.
Keep up with balance payments
Let’s be clear. Having a credit card doesn’t mean you can live beyond your means. The whole point of signing up for a credit card is to keep up with regular monthly payments to show credit lenders that you can be trusted with loans and other forms of financial support. If you make payments on time and in full, and avoid using your card for large purchases, you’ll gradually build up the credit reputation you desire.
Manage your rent and bills with care
For many students, college presents the first opportunity to live away from home, rent a room in a shared house and take full responsibility for paying household bills. Credit lenders keep a close eye on information stored by utility companies and rent that’s not paid on time. Even unpaid library fees or parking tickets can be accessed by credit lenders and future employers, so it’s really important to stay on top of all your payments.
On a similar theme, choose your roommates well. While your wild friend may be a blast at parties, you might want to rethink sharing an apartment with him or her if you fear that they might not keep up with their own payments. Debts registered at the same address have an annoying way of affecting everyone who lives there.
Start as early as possible
Time matters. According to FICO, 15% of your credit rating is based on the length of your credit history. This means that the sooner you can start building up a positive credit score, the better. Remember, potential employers sometimes run credit checks. Leaving the development of your credit rating until the week before you graduate is not going to help you secure that all-important first-time job.
Things to avoid
On a final note, no matter how responsible your friend is, no matter how good a friend they are, no matter how much they need your help, never co-sign anything for one of your pals. You can’t control how they’re going to behave in a few years time. You can’t be sure if they’re going to be financially independent enough to keep up with their payments. You can’t predict whether their life will take an economical turn for the worse.
Anything you sign will have a knock-on effect on your own credit rating, which is why co-signing is simply a very bad idea. Stick to the basics, pay your debts and only sign on the dotted line when the risk is 100% yours.