It can be tough to know how to build a solid credit score when you’re just leaving high school and finally entering the so-called ‘adult’ world for the first time. We’ve come up with a list of tips to help you establish good credit from your first day on campus onward.
Consider becoming an Authorized User on your Parents’ Account
Most banks are very hesitant to give a student their own credit card because most don’t have an established credit record. While you can sometimes still get a credit card if you have a solid (verifiable) source of independent income on top of going to school, you’ll most likely be required to have a parent or guardian act as a co-borrower or co-signer.
Another option is to become an authorized user on your parent’s account. Similar to being an occasional driver on your parent’s insurance, by being an authorized user on your parent’s account you still get access to credit but are not solely responsible for it. Your parents can monitor your spending, and if they have a good credit score, it will help boost yours as well (making it easier to get your own card in the future).
Be patient and remember that you’re not going to build a solid credit score overnight. If you do manage to get your own credit card (be it a traditional or secured card), make sure that the limit is modest and not something you’ll be tempted to dip into for unnecessary purchases.
Also, don’t apply for too many credit cards at once – the hard inquiries made by the credit agencies will show up on your credit report and hurt your score. Instead, take your time to adjust to having just the one card and start making small purchases that you know you’ll be able to pay off at the end of every month (or, if you really want to take control of your finances, that you pay off immediately). If you’re a Netflix subscriber, putting your monthly payments on your card is a great way to build your score.
Don’t Use your Card for Big Ticket Items
If you’re a student, the only time you should be using your credit card for big expenses is in case of an emergency. Otherwise, it’s not worth the level of debt you risk putting yourself in. In addition, you don’t want to be stuck in the position where you lose an expensive textbook or break your phone and have to buy a replacement but can’t because you don’t have enough money left. In general, it’s best to never go over 50% of your limit.
Never Miss a Payment
Always make your payments on time. It’s ideal to pay the entire bill off in one go, but at the very least make your minimum payments. Nearly a third of your score is based on repayment habits, so missing even one monthly payment can cause long-term damage (especially to someone who’s only just started using credit).
Use Your Student Loans Wisely
Your student loan or student line of credit is another great way to build your credit score. However, the temptation to spend the money on things that have nothing to do with your education can be difficult to fight. If you only borrow what you need when you’re in school, it keeps the balance down and makes it easier to pay back when you get out of school.
Once you’ve graduated, it’s important to make at least your minimum payment each month and to make sure it’s always paid on time. If you can swing it, it’s also a good idea to increase your payments so the loan gets paid off faster (though we understand this definitely isn’t an option for many students trying to find work straight out of school).
Be Wary of Department Store Credit Cards
While they certainly have their perks, most department store credit cards also boast incredibly high interest rates (up to or even exceeding 29%), meaning that unless you make sure to completely pay them off on time every month, it’s not worth the discounted money you might save on the actual purchase. On the plus side, Department Store credit cards can be a great way to help you build credit as they’re easier to qualify for (especially if you’re diligent in making your payments on time).