Having good credit scores can go a long way in the future, and building it while in college is a great investment you will thank yourself for later.
The idea that you’re going to need a good credit score only when you’re ready to buy a home — which can feel like an eternity away — is an awful misconception. It can affect where you’ll live, which auto loans are available for you, and even what your chances are of employment. This is because the way you manage your credit tells your future landlord, utility provider, mortgage lender, and even your employer much about your future financial responsibility.
That’s why it’s never too early to think about your credit score. Plus, if you’re thinking of consolidating your college loans in the future, a good credit record can land you better interest rates.
It’s pure logic, right? Yet, a VantageScore report highlights that one in five people aged 18 to 22 have never had a credit report to see how they fare. And those who do have them obtain the lowest credit scores on average – around 672.
So how do you build your credit score?
Choose the Right Credit Card
In ‘Credit Cards Can Be A Student’s Best Friend’ it noted that a credit card can be extremely useful if you exercise discipline. Used properly, credit cards can not only build your credit scores, but also give you a lot of benefits. However, Petal highlights that new-to-credit accounts tend to be slapped with relatively higher fees and annual percentage rates (APRs). Even so-called credit builder cards, which require security deposits, tend to charge 28%+ APRs on average.
Finding the right card for you means looking for rewards and perks that suit your lifestyle, to offset the higher fees. One important way to decide this is to map out your spending and see where you’re putting your money the most. This way, you can see clearly if cashback, travel points, “round up”, or gift cards are best suited for you. Note, however, that going with only one credit card is the best way to build credit so you can ease yourself into using them.
Use Your Credit Card Responsibly
Once you get your credit card, don’t let it sit on a drawer. The best way to build credit from credit cards, as the New York Times puts it, is to treat it like cash. Building credit means showing your creditors that you are financially responsible. Make sure you’re paying on time and in full, as 35% of your credit score is dependent on your payment history. To avoid overspending, you can do different strategies like auto payment methods, which automatically take the balance from your savings account before the due date. Another way is by grabbing receipts – this way, it feels more tactile and it doesn’t feel like you’re not paying at all.
If getting a credit card isn’t the best strategy for you, there are other options you can explore to build your credit score. The Balance says that you can get your parents to add you as an authorized user of their credit card. Being an authorized user means you get to use the card while the primary user pays for it.
Other options include leveraging your other regular payments to establish a credit history. Many young people today use payment platforms to utilize their rent as a credit record. Platforms like PayLease, Rent Track, and Rental Kharma are just some popular apps you can use. It’s important to note, however, that some banks and financial institutions don’t accept this kind of information to determine credit history, so it’s best to do your research before starting.