But college isn’t for credit scores. College isn’t for real-world stuff. College is for fun. And parties and the best four years of your life—
Hold up, and think again, sister.
Want that dream apartment in NYC? Planning on someday buying a car to get to work? Are you trying not to scare your future partner away with your inability to be financially secure? (That’s real life breakup-able stuff.)
Then let’s get cracking on that credit score, ASAP.
Like the future of your career, the future of your financial success starts in college.
So, what is credit anyway?
Your credit score sounds like this ominous, mysterious, horribly-complicated, and scary thing, like the iCloud in Sex Tape. But it doesn’t have to be that way. We’re here to help you understand what credit actually is, why it’s important and how to build it in college.
Here’s the breakdown:
- Each person has a credit score, and that credit score is the belief that you have the ability and intention to repay a loan.
- Credit scores are determined from your credit report, which is a history of all loans, bill payments, credit cards, and really any other kind of payment you’ve made in the past.
- Credit scores range from 300-850. The higher the score, the better.
- Your credit report will show what types of loans you’ve had and whether or not you make your payments on time.
Okay. So why is credit even important? For 3 reasons:
- Having a good credit score saves you money in the future. Your credit score will determine your interest rate on large future loans, like a mortgage or car loan. The better the credit score, the lower the interest rate. So building good credit now will save you money in the future.
- Credit scores reflect whether you’re responsible. It’s not all about the money. Landlords, future employers, energy companies, and others can look at your credit score. Your score reflects whether or not you are reliable, so a bad credit score may lead a landlord to believe you won’t pay rent, and then you may not get the apartment you want.
- Bad credit usually means bad things to come. If you have a low credit score, it can be accompanied by other nuisances like debt collectors calling you every five minutes. No one wants that. In the long run, being fiscally responsible is easier than being fiscally irresponsible.
Yikes, right? So how do you build credit in college?
You might have loans out in your name, like student loans, but haven’t had to start paying them yet. Well we a have given you three steps to head in the right direction towards building a good credit score.
- Check your current credit score. You might have a credit history already and not even know it. It’s important to know whether you have any student loan you may have already needed to start paying back, an electricity or hospital bill in your name, or anything else. It’s smart to know what your credit is, especially if there might be some surprises. If you’re concerned by the score, get a copy of your full credit report to make sure there weren’t any mistakes. You can get a free copy of your report once a year at AnnualCreditReport.com.
- Open a beginner credit card. Opening a credit card can sound kind of scary and very adultlike, but it’s one of the best ways to build credit. When you open your card, set a maximum amount that can be charged to the card to prevent you from overspending, like a $300 limit. However, you don’t want to reach this limit and use all of the credit available to you. Instead, try spending $30-$50 a month on things you usually buy, like groceries or gas, and then pay it back on time. This will also help you form good habits for post-graduation when you have larger bills to pay.
- Pay everything on time. It’s like a class assignment. If you pay something past the due date, the longer you wait, the more points taken off your credit score. And this doesn’t apply just to loans and utility bills, but parking tickets, library late fees, and pretty much anything else with your name on it. Our lives are hectic, and it can be easy to get lost in the chaos, but it can have major consequences. It may help to mark down bill due dates in a planner or on a readily visible calendar so you won’t forget.
Want to know more? Here’s where we go:
There are a couple of great resources available about credit basics like the Better Business Bureau and the Consumer Financial Protection Bureau. When looking for more resources regarding credit, look for established organizations, preferably with .gov or .org URL’s.
Hopefully this helps dispel some of the mystery and fear surrounding the idea of credit. The best way to build good credit is to be informed, because the steps are actually pretty simple.
Now get crack-a-lackin, your dream apartment is just around the corner!