Since the credit crisis of 2007, it’s been difficult for even the most responsible consumers to get the credit they need. For young people who have little or no credit background, their future independence is bleak unless they put some effort into establishing a good credit history. Everyone from insurance carriers, cell phone providers and landlords will review your credit history to decide whether to accept you as a customer. The first opportunity many people get to prove their creditworthiness is in college. There are a few simple ways to start establishing yourself, but being disciplined is vital.
Establishing Your Credit
Although some adults may scoff at the idea of giving a student a credit card, it’s the first step in establishing good credit – the key to your financial future! You have two main options:
- For anyone under the age of 18, the easiest way to get started is to be added as an authorized user on a parent or guardians credit card. The nice thing about this option is that you will gain the history of an experienced cardholder and instantly see a step up in your credit score. Plus, you can start before you enter college!
- If you want to go it alone with a credit card, a low-limit student credit card may be the best option. These are designed for first-time card users and offer many bells and whistles to make the process easier. In addition, many credit card companies offer online courses to help students learn to use them responsibly.
Beware of give-away promotions. Accepting an offer in exchange for a college imprinted sweatshirt or coffee mug isn’t the best way to choose a credit card. The fees and penalties may be more than you bargained for and may make it difficult to stay on top of the account.
Responsible Money Management
The second step towards long-term financial stability is responsible money management. Understand the terms of your credit card agreement and adhere to them diligently. Use the card sparingly and pay the balance in full each month. And always pay on-time! Just one late payment can severely impact your credit score. Keep at it for several years so your credit history will grow and you’ll reap the benefits of a great credit score.
Many first-time cardholders make the mistake of seeing the minimum payment as their only responsibility and miss the bigger picture. One maxed out credit card will eventually lead to more, until there is a massive amount of credit card debt that destroys any possibility of earning an excellent credit rating. This will affect your personal objectives and goals – as well as your professional / business life moving forward.
Finally, don’t take your student loans for granted. Their sole purpose was to give you a leg up for the future, not for today’s fun and games. Use them for educational purposes only. This debt cannot be discharged by bankruptcy, so whatever you borrow now will definitely have to be paid back in the future. Why dig a big hole for material things?
Monitor Your Credit
The most neglected move to a build and maintain a strong credit history is to monitor all of your financial accounts. Even long time credit card users fail to follow this step that can not only improve your credit score, but is a necessary tool to secure your credit and identity.
Establish a system to regularly review your monthly bank, credit and investment statements. Credit reports should be examined at least once a year but preferably every six months. Choose a date that you’ll remember, like your birthday or anniversary, and commit to requesting your report from each of the three credit bureaus on that day. You can access your credit reports for free every 12 months by requesting them at annualcreditreport.com.
As a credit novice, your report will only take a few minutes to review with its limited data, and odds are no errors will be found. But regardless of how trivial it may seem, errors like a misspelled name or an incorrect Social Security number can wreck havoc in the future and will need to be addressed now. It’s easier to fix them early on than to wait. Each bureau has its own procedures to follow when reporting discrepancies and errors; contact them immediately to begin the process. It may take some time, but will be worth the effort down the road. Follow-up to see that the correction has been made.
Take Personal Responsibility
Taking personal responsibility is the most vital step in your long-term financial success. Do you really need to charge another pair of $12 flip-flops? Is paying for another round of drinks worth the long-term affect on your credit score? Resisting the impulse to feed your desires is the key to keeping your credit in check and an important principle for financial management in general. Living within your means without depending on credit is the most important thing you can learn while trying to build and establish your credit in college.
* See a complete list of credit cards designed for students →