If you are about to start college as a freshman, or if you are returning for a new semester, you probably have a lot on your mind. You may be thinking about the classes you will be taking, your housing arrangements and whether or not you will be juggling employment on top of your school activities. And in addition to all of these other things, you may want to give some thought to your credit.
Transitioning into your professional life after graduation will be a little easier if you have an established credit history. Having good credit will help you qualify for loans, get better insurance rates, rent an apartment and qualify for a cell phone plan. And it is entirely possible to start building good credit as a college student.
There are a few tips to follow that will give you a jumpstart on credit building, but, ultimately, it all comes down to your ability to be responsible.
Ways to Start Building Good Credit
The simple rule is that in order to build credit, you have to use credit. However, if you are young and fairly inexperienced with credit, you may want to start small and only take on as much credit responsibility as you can comfortably manage.
- Become an authorized user on a parent's account.
As long as you have a parent who has good credit, you can benefit from their standing by officially being added to one of their credit card accounts. Due to the Credit CARD Act, this may be the only viable credit option for many college students. This is because the Credit CARD Act dictates that people under the age of 21 must now either have a co-signer or be able to show proof of an independent income in order to be approved for their own credit card.
- Open up your own credit card account.
On the other hand, if you do have a job and can provide verification of a regular income, you may be able to qualify for a credit card on your own. If your lack of a credit history makes it difficult to get approved for an unsecured card, you can pick a secured credit card instead.
You will need cash to put down as a deposit, and the amount of this deposit becomes your spending limit. The card that you will be issued with your secured account can be used for making purchases just like a "regular" card, and after making timely payments for a while, you may be allowed to transition over to an unsecured account with a higher spending limit.
- Finance a vehicle purchase.
If you find that you need a car, instead of saving up and paying cash, taking out an auto loan will help you to establish credit. While it may be difficult to obtain financing approval from a bank or credit union with little or no credit, a special finance lender may be able to work with your situation. Also, some automakers offer first-time buyer programs for qualifying college graduates.
Once you have purchased a vehicle with an auto loan, you will have the opportunity to improve your credit over the life of the loan just by making each and every payment on time. Once you have established your credit, you can use any equity in it as part of a down payment on your next car loan.
Building good credit will take time and effort, so you will want to make sure that you don't sabotage your plan by making one of the credit mistakes that are all too common among students.
Easy Ways to Wreck Your Credit
Unfortunately, it is incredibly easy to ruin your credit. One innocent mistake can quickly lead to a big problem, so make sure to avoid the following actions.
- Overspending: Temptations are everywhere when there is plastic in your wallet, but you should never use credit to extend your shopping budget. Using too much of your credit will hurt your overall rating and potentially lead to too much debt.
- Missing Payments: Every late loan or credit card payment will count against your credit score, so make sure that you always leave enough money in your budget to cover your financial responsibilities. And never just stop making payments on an account. Any credit card account that is "charged-off" and goes to collections can stay on your credit report as a negative item for up to seven years.
- Co-Signing: If you are over the age of 21, you are technically allowed to co-sign for a younger friend who wants to apply for a credit card, but this is a bad idea. Co-signing for someone else's card means that you are responsible for the account if your friend can't keep up with the payments. As much as you may want to help someone, in most cases, co-signing is just too risky.
- Student Loan Abuse: Education expenses alone can cause you to rack up a formidable amount of student debt, so avoid making the problem even worse by taking out these kinds of loans for other purposes. As much as you want to go to Cancun over Spring Break, this is not the right way to finance your vacation.
So, if you want to build good credit while you are in college, make sure that you never take on more credit than your income can support and that you always handle this credit responsibly. If you are smart with your credit, you could graduate from college with both a degree and a solid credit rating.
Financing a Car as a College Student
If you are interested in financing a car, but you don't know where to look for the right kind of lender, Auto Credit Express can help. No matter what your credit (or lack of credit) looks like, we can match you with a dealer in your area who works with special finance lenders. Don't have a lot free time? Don't worry. Our process is fast and easy, and the service that we offer is absolutely free.
So, what are you waiting for? Go ahead and fill out our simple and 100% secure online application to get started today.