Get Schooled on Credit: Credit-Building Tips for Students
The first time a person wonders about his or her credit score may very well be in adulthood, maybe after obtaining their first credit card or taking out a first loan. By then, a credit score has already been calculated and the best thing he or she can do is learn what it is and discover how to maintain or improve it.
The ideal case is that from the very beginning, a cardholder will intentionally make decisions to earn a good score, starting with that first card. This is typically in a person’s early 20s or earlier; nearly half of credit card holders got their first cards before they were 21, while about two-thirds said they got their first cards before age 25, according to a press release from CreditCards.com.
Building good credit early on will set people up for advantages later in life, like when it’s time to take out a loan for a car purchase or a mortgage. Luckily, there are some easy things students can do to take their credit score into their own hands.
Choose and Use Wisely
If you have student loans, these will help to build your credit, but not right away. Getting a credit card is a much faster way to start building credit and growing your score. But simply owning a card with your name on it doesn’t prove much to the credit bureaus about your ability to take on debt and pay it off. You’ll need to use it to get results, The Simple Dollar pointed out.
Keep your card in your wallet and begin using it for every day purchases. Buy groceries and gas, or pay cell phone or utility bills, or use it any way you would use your debit card or cash. As you make purchases, you are acquiring debt. While this may sound negative, it’s actually a good thing. When you pay it off on time and in-full, it shows that you are responsible and trustworthy.
The important thing to keep in mind is budgeting. When using a credit card for purchases, it can be easy to lose track of how much you’ve spent and how much you can afford. To avoid overspending, create a realistic monthly budget and stick to it.
Pay It Off
As you go about your month, you’ll continue to use your credit card, increasing the amount that will be due at the end of the month. Staying within budget is crucial because you don’t want to carry a balance over from one month to another. When this happens, you’ll be charged interest, and that can harm your budget.
Many credit cards offer favorable promotional rates for students, like 0 percent APR for the first year or 15 months. During this time period, you won’t be charged any interest. However, falling into a habit of not paying your bill in full is a difficult one to break and can be detrimental once the promotional period ends.
Always On Time
Knowing when your payment is due is also crucial. Late payments can harm your score, regardless of how long you’ve had the card. According to Equifax, the longer you wait to pay off your bill, the bigger the impact it will have.
Unfortunately, a late payment will impact a higher credit score more than a lower one. A cardholder who has a score of 780 could lose between 90 and 110 points when they miss their first payment and pay it 30 days late. On the other hand, a cardholder who has a score of 680 and has already missed one payment may only lose between 60 and 80 points when they make a second payment 30 days late.
Building credit is a big responsibility and unfortunately many young adults get it wrong. But by following these tips, you’ll be on the right path from the very beginning.