Advice for College Students: How to Get Good Credit
Leaving home for college is an exciting time for young adults and is the time when many learn how to cook, how to manage an overly-full schedule, and how to handle bills; it is also the time to learn how to get good credit. Life is full of expenses – rent, groceries, utilities, clothes, books – the list is almost endless.
Before long, car payments become a necessity, and house payments often follow graduation. The amount that one pays for these expenses varies depending on many factors, including credit score. Having a good credit score can mean hundreds of dollars a month in savings by getting a better rate on a loan for a car or home purchase. Here are some of the steps to take to establish good credit.
Set up Checking and Savings accounts in your name. Getting good credit depends on being in the money game.
Get accounts with payments in your name. If you live off campus, arrange for the utilities and rent accounts to be in your name, even if your parents make the payments. It gets a credit record started for you.
Open a credit or store charge account. Use the card only for purchases that you have the money for, and pay the bill off at the end of the month – at least initially. Be selective about which card you get. Good credit cards to build credit won’t have annual fees or high interest rates. Interest rates are wildly variable, and you may find a special promotional rate on a card that is as low as 4% or so, or you may be offered a card that is available to bad credit risks that will charge you more than 23%. That really makes a big difference when you start carrying a balance on the card, so make sure you get the best available interest rate.
Make all your payments on time. Late payments get reported to the credit reporting bureaus along with missed payments, so don’t slack off on the timing. If you are late on a payment, call and speak to the creditor. They are often willing to hold off on reporting if they know the payment is coming, but the communication is up to you.
Once you have the hang of paying off your credit card every month, plan to buy something that you will pay off over a few months to raise your score, but make sure it’s something you would normally buy. For example, put your textbooks on a credit card. You don’t want to accumulate debt or bills you can’t pay and end up ruining your newly established credit.
Check your credit report at annualcreditreport.com. After a year or so of building up credit, be sure to get a copy of your credit report from at least one of the national credit reporting bureaus: Experian, TransUnion, and Equifax. The website mentioned is recognized by the federal government and really does provide the reports free of charge. Beware of other sites offering free credit reports because they usually require a membership that is not free. Read over the report to make sure all information is accurately reported. If you have good accounts that are not there, call and ask them to make a report to help build up your credit score.
When it comes time to buy a car or home, the lender will check your credit score, which is calculated by the credit reporting agencies based on your credit report. You can get them to tell you the score for a fee (usually less than $20) or the lender can tell you, although credit companies used to make them agree not to and some may still do that. You want to make sure you establish a good credit score for mortgage or auto loans. The difference on these major purchases will really add up.
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