Building good credit is essential to make your transition into adulthood a smooth one, as a great number of “real life” situations require a good credit score. Your credit score will probably be researched when you rent an apartment, buy a car, rent furniture, or even apply for some jobs, and it is essential that your score be satisfactory in these and many other situations.
So as a college student, where should you start? As the saying goes, you need credit to get credit, right? So isn’t it just a hopeless cycle? Unfortunately, in a way, that’s all very true- getting started can be quite difficult. However, there are a number of steps you can take to start building credit while you’re still in college, and although they may not all work for you, the benefits of having good credit certainly outweigh the inconveniences of trying to build it. Follow these tips for some general ideas:
1. Try piggybacking.
Piggybacking is a great way to earn credit as a college student. Many times, students are not approved for their own credit cards (especially after recent legislation raised the minimum age on most cards to 21), but with this method, you can build credit without needing individual approval. Piggybacking works by providing you with a link to one of your parent’s credit cards. They simply put your name on one of their credit card accounts, and whether they actually let you use the card or not, you start building credit based on their financial activities with the card. This works wonderfully because in theory, your parents have already developed good credit habits and will take extra care to pay their bills on time knowing that their financial behavior is now affecting your credit score as well.
2. Get the right card.
If you think you’re eligible for your own credit card, be sure to select the right one. Some companies offer student cards, which are perfect for college students in that they usually have decent interest rates and no annual fees, two factors which are extremely important to consider when selecting a credit card. Just beware of rewards programs cards. Some are truly wonderful and offer real, valuable rewards, all with no annual fee or increased interest rates. Others, however, offer useless rewards, and in exchange, they charge you exorbitant rates and fees. If you do opt for a rewards card, be sure the value of the rewards balances fairly with any extra fees you may incur.
3. Don’t carry a balance.
Your best bet with a credit card (if you aren’t piggybacking) is to pay off your entire balance each month. One way to do this is to only purchase on the card what you already have enough money to pay for out of pocket. Not only does this ensure that you don’t accidentally overspend on your card, but it can also save you money. Think about it: Credit card companies have to make money somehow, so where does it come from? Creditors aren’t philanthropists; they don’t lend you money because they want to be nice. They expect to make money on what they lend out, and they do this by collecting interest on the balance you carry over from month to month. Avoid paying these fees by always saving enough money to pay off your whole balance each month.
4. Pay your bill!
Seriously, pay it. Pay it on time, every single month, no matter what. Institutions only want to lend to people whom they can trust to eventually pay them their money back. If you can’t even meet the minimum monthly payment on a credit card with a $500 limit, how do you think you’ll be viewed by dealerships later in life when you’re asking to borrow $15,000 for a car? Your chances of getting approved will be pretty slim, that’s for sure. Paying your bill also has the short term advantage of saving you from having to pay late payment penalties, which can be rather expensive, especially if you’re habitually late on your payments. Finally, being responsible keeps you from suffering the mind-blowingly huge increases in your interest rates that often result from late payments.
Ultimately, building good credit in college is all about being responsible and using common sense. Use your parents as your first resource, as piggybacking can give you a great jump start on your credit score. Also, never spend money that you don’t have or delay paying your bill. By following these tips, you can start building a solid credit history that will, in turn, help you build a solid future.
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