You know you have grown up when you become financially independent. Even so, learning to establish financial independence is not always easy.
As a college student, building your credit score is a necessity! Your credit score is a major factor in your future financial dealings. Insurance companies, employers, lenders, and even utility companies will consider your credit score before they approve your application.
Here are 10 things you can start doing today to help build your credit score
1. Choose the credit card, not the other way round
Do your research before you apply for a credit card. Make a list of features you MUST have. Are you looking for a reward card? Something with low initial rate? Visa, Master Card, Discover or American Express. (Keep in mind that while American Express & Discover are widely accepted, not all small shops take them. If you are in a small town, you may want to look around and make sure that the places you shop accept them. If not, stay within the Visa and Mastercard Family of cards).
Don’t be swayed by “free gifts”! Don’t do it because you will a get a free coffee mug or T-shirt. Make sure you read the terms of agreement stated by your credit card issuer. Make comparisons with other offers in the market. Then, go for the card that best suits your needs.
2. You don’t need many credit cards; one is enough
Opening numerous credit lines is tempting. However, it is not such a wise thing to do. Your credit score drops by several points each time you apply for credit. Also, when you have a lot of credit cards, its tempting to pay all your expenses with them. A lot of people unwittingly accumulate a lot of debt due to having a lot of credit cards.
3. Do not use your credit card to charge expensive items
Your credit card is not meant for buying things you cannot afford. Charging expensive items that you cannot pay off by the end of the month will cause you to have to pay interest on the amount you don’t pay off. You actually pay more by making minimum payments towards your balance. A $20 item can end up costing almost $100
4. Pay your bill in full.
The simplest way to avoid amassing massive debt is by paying off your credit cards in full. Again, restrict your purchases to what you can afford, and make sure to pay off the balance every month.
5. Lenders do not forgive late payments!
When you are building credit, don’t forget how you HANDLE your credit is be scrutinized by the credit reporting agencies. Late payments not only tell a lender you may be a credit risk, but being late will negatively affect your credit score!
And they aren’t just watching how you pay your credit cards. Many financial institutions, including credit bureaus, have developed alternative scoring models for millennials who don’t carry credit cards. Utility payments, taxes, and even library fees can affect your credit.
6. A credit card is not a savings account
Do not act like your credit card is a savings account that you can dip into when an emergency arises. It is easy to put a big expense on your card, but it may take you months to pay off the original charge and the interest charged.
It’s a very wise financial move to have a savings account. Having a “rainy day fund” comes in handy to pay for those emergency purchases. Since most companies pay via ACH payment you can allocate a certain amount to go into your saving account automatically. Thus when the need arises, you have a place to get much needed funds.
7. Forget about cash advances
Cash advances may seem attractive, but they aren’t. First, there is a cash advance fee of 2-4%, and you will have to pay finance charges. On top of that, the interest rate charged is higher than your ordinary purchases or bank transfers.
8. Don’t go over your credit limit
If you charge more than your credit limit, the fee involved is costly. Limit your credit utilization to 10-30% of your overall credit limit. Once you go over 35% credit utilization, your credit score will actually suffer because credit card debt is one of the leading causes of bankruptcy.
9. Do not agree to cosign for a friend
You are working hard to build up your credit score. And your friends probably admire you for it and ask if you can help them. Co-signing for a friend or significant other is a VERY BAD IDEA for many reasons. If for any reason your friend doesn’t pay, the creditor will turn to you to make the payments. If you do not make the payments it will not just effect your friends credit but YOURS too!
10. Use your card wisely
A good way to build your credit history is by using your credit card responsibly. And ALWAYS making your payments on-time or before they are due! Purchase items you won’t have a difficult time paying off. Remember that little purchases add up! So keep track of it by viewing your online statement daily or at least weekly.
Some people take out a card and never use it. That doesn’t allow the bank to see how you handle credit. They want to know if you owe a debt, will you pay on time, or will you be constantly late. When you ask them for a credit line increase (and you should, 6 months to a year after obtaining your card) they are more likely to say yes if you have been acting responsibly.