As a college student, your primary focus is likely on academics, social activities, and maybe even part-time work. However, there’s another crucial aspect of your future that you should start thinking about now: your credit history.
Establishing and managing your credit while still in school can pave the way for a robust financial future, opening doors to better financial opportunities post-graduation. Here’s why building credit is significant and how you can do it responsibly.
Ways to Build Credit as a Student Responsibly
Building credit as a college student is a proactive step toward ensuring a strong financial future. Here are several strategies to establish and manage your credit responsibly:
Become an authorized user
One of the simplest ways to start building credit is to become an authorized user on a parent’s or guardian’s credit card. As an authorized user, you’ll benefit from their positive credit history without being responsible for the debt. Here’s how it works:
- Piggyback on good credit: Your credit report will reflect the account’s positive payment history, assuming the primary cardholder manages the account well.
- Minimal risk: You’re not legally obligated to pay the debt, but you should still use the card responsibly to build good habits.
Apply for a secured credit card
If you’re unable to get a regular credit card, a secured credit card is a great alternative. With a secured card, you deposit a certain amount of money with the card issuer, which serves as your credit limit. Here’s how to use it effectively:
- Initial deposit: The deposit reduces the risk for the issuer and determines your credit limit.
- Regular use: Make small purchases and pay off the balance each month to demonstrate responsible credit use.
- Transition to unsecured card: After a period of responsible use, some issuers allow you to transition to an unsecured card and return your deposit.
Pay your bills on time
Timely payment of all your bills, including utilities, rent, and any installment loans, contributes positively to your credit history. Here’s how to stay on top of your payments:
- Set up reminders: Use calendar alerts or mobile app notifications to remind you of due dates.
- Automatic payments: Where possible, set up automatic payments to ensure you never miss a due date.
Keep your credit use low
Credit utilization is the ratio of your credit card balances to your credit limits. Aim to keep this ratio below 30% to show lenders that you’re managing your credit wisely. Here’s why it matters:
- Credit score impact: High utilization can negatively affect your credit score, while low utilization indicates responsible credit management.
- Manage spending: Monitor your credit card usage and keep balances low relative to your limits.
Monitor your credit report
Regularly check your credit report for errors or signs of fraudulent activity. You’re entitled to a free credit report from each of the three major credit bureaus once a year through AnnualCreditReport.com. Here’s what to do:
- Review reports annually: Obtain and review reports from Experian, TransUnion, and Equifax. Since each allows one a year, space them out so you’re getting one every four months.
- Identify errors: Look for incorrect information, such as wrong addresses or accounts you didn’t open.
- Report discrepancies: Dispute any errors with the credit bureau to ensure your credit report is accurate.
Take out a small loan
If you have a steady income, consider taking out a small personal loan or a credit-builder loan. Here’s how this can help:
- Establish credit history: Regular payments on a small loan can build a positive credit history.
- Demonstrate reliability: Showing that you can manage different types of credit responsibly boosts your credit profile.
Use rent reporting services
Some services report your rent payments to the credit bureaus, which can help build your credit history. Here’s how to make the most of it:
- Choose a service: Find a reputable rent reporting service.
- Consistent payments: Ensure you pay your rent on time each month to benefit from this reporting.
Limit credit inquiries
Each time you apply for credit, a hard inquiry is made on your credit report, which can slightly lower your score. Here’s how to manage this:
- Space out applications: Avoid applying for multiple credit accounts in a short period.
- Research before applying: Only apply for credit cards or loans you’re likely to be approved for.
Establish a budget
Creating and sticking to a budget helps you manage your finances and avoid unnecessary debt. Here’s how to budget effectively:
- Track income and expenses: Monitor where your money is coming from and where it’s going.
- Set financial goals: Establish short-term and long-term financial goals to stay motivated.
- Adjust as needed: Regularly review and adjust your budget to reflect changes in your financial situation.
Why a Good Credit Score Is Important
A credit score is a numerical representation of your creditworthiness, typically ranging from 300 to 850. This score is used by lenders, landlords, and even some employers to gauge how responsible you are with managing money. A higher credit score can lead to numerous benefits that make a significant impact on your financial life. Consider the following:
- Lower interest rates: A higher credit score indicates to lenders that you are less of a risk, which often results in lower interest rates, saving you money.
- Better loan approvals: Lenders are more likely to approve applications from individuals with high credit scores.
- Housing opportunities: Many landlords use credit scores to screen potential tenants, as it gives them an idea of how reliably you pay your bills.
- Employment prospects: A good credit score can indicate to potential employers that you are responsible and reliable.
- Better insurance rates: Insurance companies often use credit scores to determine premiums for auto and home insurance.
- Higher credit limits: A good credit score can also result in higher credit limits on your credit cards.
- Enhanced financial reputation: A good credit score signals to various entities that you are trustworthy and capable of managing your financial obligations.
Build Your Credit and Start Your Future With AZCCU’s Help
Building credit as a college student is not just about securing a good credit score; it’s about laying the foundation for a solid financial future. Start small, stay consistent, and watch as your creditworthiness grows, opening up a world of financial opportunities post-graduation.
Let Arizona Central Credit Union help you build your credit future. Whether you’re thinking about paying for college or applying for a credit card, we can get you the best terms so you can rest easy. If you have any questions, contact us online or call (866) 264-6421.
