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There are plenty of ways to build good credit during college, so that when the time comes to buy that first house or a new car, you’ll be able to do so without a bad credit score getting in the way.
Credit card issuers know the importance of building credit and understand the value of building relationships with customers early. That’s why many offer student credit cards that are tailored to a student’s needs.
Student credit cards don’t require a previous credit history to apply and often offer school-related perks, like cash back for good grades. Some cards offer other benefits, too, like increasing your rewards rate for making payments on time.
Student credit cards are a great option -- as long as they’re used wisely -- to help start building credit.
Don’t feel up to getting a credit card of your own? Have a parent or guardian add you as an authorized user on their credit card.
Authorized users have the benefit of getting their own card and access to the primary cardholder’s credit limit, but don’t have any legal responsibility to pay off the debt on the credit card.
In fact, you don’t actually have to use the card for it to help you build your credit score. Just make sure that the credit issuer reports authorized users to credit bureaus as this is not always the case.
A secured credit card is great both if you’re trying to build credit or if your credit score has taken a hit and you need to build it back up.
A secured credit card is similar to a debit card in that it is backed up by your own cash, paid in the form of a deposit. This deposit will serve as part or all of your credit limit
The difference between a secured credit card and a debit card is that secured credit card activity is reported to credit bureaus.
Once you feel ready to get your own credit card, don’t just go out and sign up for the first one that sounds good; it’s important to do some research first.
While a “reward credit card” sounds great, it might not be the best card for someone just starting to build credit. They tend to have a higher annual percentage rate (APR) and annual fees that will negate the airline miles and “cash back.”
Research to find a card with benefits like a lower interest rate, no annual fees, reasonable credit limits and clear billing policies.
One option is a retail card, or a credit card from a retailer. They often come with fewer benefits and lower spending limits, but using this card and paying the bill regularly will build good credit.
Whether you’re approved for your first credit card or not, be careful how many credit cards you apply for.
For starters, applying for multiple credit cards in a short period of time can be a red flag to card issuers. In fact, some card issuers have policies discouraging multiple applications.
Plus, each time you apply for a credit card, a hard inquiry is made into your credit report. Hard inquiries lower your credit score in the short term and multiple inquiries can make you look like a credit risk in the long term.
Finally, you don't want to have too many credit cards in your wallet. That’s a lot of responsibility to take on, no matter if you’re a student or an adult with a steady income.
Just like you track your grades during the season, it’s important to track the progress you make on building your credit score.
Everyone is entitled to one free credit report a year from one of the three reporting bureaus; Experian, TransUnion, and Equifax. Right now, in light of the Coronavirus pandemic, many credit bureaus are offering free weekly credit reports through April 2021.
Along with watching your progress, tracking your credit score can help you to keep track of activity on your accounts and alert you to any concerns (ie; identity theft).
Now that you have some sort of credit card comes the most important advice; use it, but do so wisely.
Don’t leave the card sitting in your wallet unused. Banks will actually close accounts due to no activity. Also, you can’t build credit history if there is no activity.
A good way to use the card responsibly? Make small, recurring charges on your card. Use it for regular expenses like gas or monthly subscriptions (Netflix or websites), that you already know you can afford and have budgeted for.
Along with making the card balance easy to manage, keeping debt low will ensure that you can use the card in case of emergencies, if a major purchase becomes necessary, like a broken smartphone or a blown tire.
We’ve talked a lot about credit cards thus far, but they’re not the only thing that can help you build good credit.
For one, your student loans. Make sure you’re paying them on time, and if you can, pay off more than the minimum amount each month to try and pay them off more quickly.
Also, use student loans as an opportunity to develop good habits. Don’t take out more than you need or spend the money on noneducation items. That helps to keep the balance down.
It’s not just credit cards that can help -- or hurt -- your credit score.
All three major credit bureaus collect and list rental payments on credit reports. Other things like traffic fines and internet service, can impact your credit score, so make sure those are getting paid off on time and in full.
In 2018 credit bureau, Experian launched “Experian Boost.” If you grant Experian permission to your bank account, this platform will report mobile phone and utility payments – which can help your credit score.
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