College is an exciting time of new independence, exploration and getting to make big decisions on your own for the first time. While there are lots of adventures and new opportunities ahead of you, it’s also important to keep an eye on less exciting items like your finances.
There are many different aspects of your finances. Building credit is one with long-lasting consequences, since your credit score can determine whether you’re able to secure a loan, mortgage, better interest rates and even employment in the future.
Here are some ways to help build your credit as a college student without being overwhelmed by debt.
Don’t sign up for credit cards you can’t afford
As a college student, it’s tempting to sign up for credit cards to help you make ends meet. There are often credit card promotions on campus that specifically target students, making it all too easy to apply without thinking through the consequences.
One of the biggest downsides of applying for too many credit cards is that each application triggers a “hard check” of your credit report. Too many hard checks can lower your credit score, as it suggests you could be trying to borrow more money than you can repay.
If you need additional support paying for books, classes or housing, you might consider borrowing money from a bank, credit union or online lender in the form of a personal loan. If you qualify for a low interest rate and favorable loan terms, a personal loan may be more affordable than a credit card.
Do your research on lenders and make sure you understand the terms of a loan before you sign. And whether you take out a loan or get a credit card, make sure you budget for your debt payments every month.
Pay your bills on time
One of the most important ways to build and maintain your credit is to pay your bills on time. Your payment history accounts for 35% of your FICO® credit score. Late bill payments show up in your credit report and often come with a late payment fee or additional interest, meaning you end up paying more over time.
Additionally, late payments could stay on your credit report for up to seven years. Aim to pay at least the minimum amount due each month and reach out to your lender or card provider if you don’t have the money to make a payment — sometimes they’re open to negotiating. If you’re able to pay off your credit card bill in full, you won’t accrue additional interest.
If you have student loans, you’ll also need to pay those back on schedule once they come due.
Don’t use too much credit at once
With credit cards, you don’t need to pay your full balance every month — you just need to make the required minimum payment. But it’s best not to charge more than you can afford to pay off every month if possible. Carrying a high balance over time not only increases your interest costs, but it also raises your credit utilization ratio.
Your credit utilization ratio is how much of your available credit you’re using at a given time, and it’s a factor in your overall FICO credit rating (30%). Try to keep your credit utilization below 30% for a better credit score.
Keep an eye on your credit
Make a habit of checking your credit report periodically. You can do this once per week for free through the three major credit agencies (Equifax, Experian and TransUnion) at AnnualCreditReport.com, though you don’t necessarily need to do it that often.
Your credit report shows how many credit cards you have, your payment history and whether you’re paying off your loans and bills on time. It can also reveal instances of potential identity theft, like accounts in your name that you’ve never opened. If you catch identity theft early, you can address it before it causes serious harm to your credit score.
Build credit for your future self
There are many tempting opportunities to use your credit card in college, from nights out with friends to paying for a fun trip over spring break. But be careful not to splurge at the expense of your good credit. A higher credit score could give you better options in the future if you need to finance a car, rent an apartment or apply for a small business loan.
By using credit cards responsibly, paying your bills on time and reviewing your credit report from time to time, you can make the most of college and set yourself up for long-term financial stability.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of opportunitydesk.org or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
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