Five Tips for Building Good Credit
“I started college this year. I’m starting to hear more people talk about how it’s important to have good credit, but I don’t know the first thing about finances. Any tips?” – Elise from Dover, DE
Hi Elise. It’s wonderful that you’re already starting to think about your financial future. Building good credit is important since it affects whether or not you qualify for things like loans and insurance for your vehicle and home. Additionally, many employers and landlords look at your credit history when determining whether or not you’re a viable candidate or tenant.
Here are some tips for how you can get started building your credit while in college:
- Open up a credit card. You’ve no doubt received offers in the mail and on campus from companies promising free t-shirts or pizza in exchange for opening up a card. Steer clear of these. Instead, look for a credit card that has a low interest rate (under 17 percent) after the initial sign-up period. You should also avoid cards that charge an annual fee. Be aware: if you are under 21, you may need an adult to co-sign for you. For more suggestions, check out Forbes’ article, “Picking a College Student’s First Credit Card.”
- Use your credit card wisely. Opening a credit card won’t get you credit; you’ll need to show that you can make payments on time. The best advice is to start using the card to cover certain recurring expenses, such as rent, utility bills, student loans and cable subscriptions. Keep in mind each card will have a credit limit on how much you can charge on the card; for young adults, this amount is likely to be low.
- Pay off your card – and your other bills – on time. Submitting payments on time is important for building credit. A good rule of thumb is to use credit cards for expenses you already have the money to pay for, then paying them off immediately when you get your bill (this will also help you avoid accruing interest). And don’t forget your other bills – one credit bureau (Experian) collects information on rental payments as well.
- Be responsible with your student loans. If you receive student loans, it may be tempting to blow through the funds at the beginning of the semester or to use them on non-school expenses. Create a budget and pace your spending so you don’t run out of money and get tempted to use your credit card for things you can’t afford.
- Don’t co-sign for others. You may think you’re being a good friend or significant other by helping your friends or partners get a credit card; but you’re putting your own credit at risk. As a co-signer, you’re liable for any unpaid balances on these cards.
Once you start building your credit, you will want to keep tabs on your credit score by requesting a credit report. Each person is permitted one free report per year from the government-sponsored site, https://www.annualcreditreport.com/.
For more advice, research financial literacy programs offered in your area or get in touch with your local Goodwill agency; many offer financial strengthening and education resources that can help you start your financial future on the right foot.