How to Establish Credit as a College Student
The most important thing while starting your finances while in college is establishing credit. You can put your student credit card to good use to repair or build your credit while in college. This article will provide you with some direction as to what money lenders or banks look for in your credit and how you can build a good credit score.
What is Credit and why is it important? How is credit history established?
Simply put credit is your financial reputation. How good your financial health can be inferred from your credit score. Your credit history is established in any or all of the following ways:
• Any active loan or credit card accounts that you have
• The amount of money that you have borrowed
• You bills payment or loan/credit card dues payment history
• Any defaulted payments in your loan or credit card account
• The number of time you make late payments
• History of default or bankruptcies
Employers, Insurance agents and Money Lenders all look for you credit history to make sure you are financially responsible and capable of handling your own finances. Ideally not having a credit it is much better than having a poor credit. If you have poor credit then money lenders or banks will know what they can expect from you based on your history. This is the main reason why a good credit history should be established.
How does a student credit card help in establishing credit?
If you are in college and looking to establish credit, having a student credit card will be of help. Student credit cards are easy to obtain, even without a credit, and will be a launch pad for you to start handling your finances and prove that you are financially responsible. As a student it will be difficult to obtain car loans or other type of loans without credit. Hence a student credit card with a low limit ($500 to $1,000 on average) is easy to apply and obtain.
Having a loan in your own name automatically opens your credit history. A student credit card is also a type of loan as when you use the card, you would need to pay the money back. A simple loan system with limited cash involved. You build your credit history by using your credit card and repay your dues regularly. A proper and timely repayment is an indicator that you are financially responsible and will keep your credit history on the positive side.
Using your student credit cards can put you on the fast lane to build a credit as credit card issuers frequently update credit information to the credit bureaus. The payment information, balance information and other transactions related to your credit card will be updated monthly. This means that once you obtain a student credit card, you get to have you first credit score in as little as 30 to 45 days.
Some tips on using your student credit card wisely
If you end up building a poor credit score with your student credit card then the whole idea of wanting to establish a good credit history is lost. This means that your student credit card has to be used wisely.
• Think twice before using your student credit card. Buy those items that you really have a need for.
• Spends on your card should not exceed the balance available on your savings account. If this exceed then you will not be able to repay the outstanding and will have to pay interest. Paying interest or defaulting payments will bring your credit score down.
• Make sure to pay the balance in full to avoid extra interest charges.
• Repaying your student credit card dues on time is of prime importance. Repayment pattern is the first thing that will either increase or decrease your credit history based on how well and in timely fashion you repay.
A student credit card when properly used can be a powerful way to establish a good credit history while in college and lays a solid foundation for all your future financial needs.
Find a credit card for college students with our guide.
