Building Good Credit for College Students and Recent Graduates
Young people who are living on their own for the first time often experience financial pressures they’ve never before faced. That’s why it’s critical they plan ahead to create and maintain good credit. Your financial discipline now will pay off in a lower interest rate when you apply for a home mortgage, saving you a substantial amount of money over the life of the loan.
First, make a budget. How much income do you have each month? What are your expenses? Track your spending to make sure you’re being honest about expenses and to find areas you can cut back. Are there items you bought because you wanted them or did you really need them?
Open a checking and savings account. Save as much as you can. Even a small savings account will begin creating a financial history for you. If you don’t seem to have any money at the end of the month to devote to savings, review your spending.
Pay your bills on time. It’s a good idea to send payment as soon as you receive a bill to make sure it is received well in advance of the deadline. This not only avoids late fees, it also ensures your credit score won’t be docked.
Don’t move a lot. Living at the same address for two years shows you have some degree of stability in your life and are less of a credit risk. Creditors often grant some leeway to college students on this account since changing addresses more than every two years is normal for them.
Manage your credit cards wisely. If you need a credit card for emergencies, find one with no annual fees and a low interest rate. Pay off your balance each month or at least pay substantially more than the monthly minimum. Don’t loan your credit cards to anyone. Report a lost or stolen card immediately.
Consider applying for a small loan. If you don’t have an auto loan or student loans, consider applying for a loan. Borrow an amount you can pay off within a year without difficulty to create a track record as a responsible borrower.
Pay down debt. If you have a substantial amount of debt, focus on reducing it as quickly as you can. Perhaps a second job is in order. Your debt to income ratio is considered when calculating your credit score.
Review your credit report. It’s a good idea once a year to request your credit report. Look it over carefully and report any errors you find.
Be disciplined. You’ll be tempted many times to overspend. Some friends might try to entice you on shopping spree or a spring break trip to Florida. Perhaps you’re intrigued by the latest technological gizmo. Give in and spend the money, if you’ve spent months saving just for this occasion. Otherwise, forget it. They’ll be more chances to spend money later. For now, you need to focus on the financial fundamentals that will create and maintain your good credit.
