September 13th, 2010
The College Student’s Nitty Gritty Guide To Building Good Credit
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When there are midterms, big games, frat parties, and campus activities to keep busy with, young consumers going back to school this Fall probably don’t have credit on their minds. But in a few years when they move on to get more credit cards, finance a car, get a loan, and eventually buy a house, bad credit behavior back in college could back to haunt them with a poor credit score.
Pass on this quick & dirty guide to building good credit to your college-bound friends and family, whether it’s they are freshman year or seniors, so they can discover the right financial attitude while also soul-searching in college. These are lessons best learned outside the classrooms to truly prepare for the the Real World.
Credit Cards – There are enough tips, tricks, benefits, and drawbacks to credit cards to fill up a library on its own. But for the sake of the nitty gritty basics, here’s 5 simple steps that are the core things to know to make your credit card work for you (i.e. build healthy credit) instead of against you (i.e. rack up fees and debt).
- Get a student credit card that fits your spending needs. For example, if you have a car and buy gas frequently, the Discover Student Open Road Card earns double cash back bonus on the first $250 in purchases each month on gas stations and restaurants, and 1% cash back on all other purchases. But stay focused about your choice: if your card has 2% cash back on entertainment and restaurants, don’t let it tempt you into unnecessary expenses. The rewards you earn should be on the things you already buy, like textbooks and gas.
- Know all important details of your card: APR, annual fees, late fee, balance transfer rate and fee, rewards program earning and redemption rules, credit limit, intro rates and expiration date for it, penalties, and due date of your bill statements.
- Write into your planner or calendar the due date of your credit card bill so you ALWAYS pay on-time. Paying on-time is a very influential component of your credit score; consistent on-time payments are the foundation of good credit habits. Set up automatic payments if you don’t want to stress about it over the month.
- Set strict rules for your credit utilization. Figure out what 30% of your credit limit is. Let’s say you have a $2,000 credit limit; 30% is $600, and make that your spending limit. In the correlation of credit utilization to credit scores, keeping your credit use under 30% of the total limit is recommended to earn good credit.
- However, if you are uneasy about handling credit, the big rule of thumb is not to buy anything you can’t pay back right away. Too many young consumers think of credit cards as their chance to buy things they couldn’t otherwise–their first T.V, dinners out, or occasional shopping sprees. Buying stuff with money you don’t have is the fast track to debt. So don’t strive to max out 30% of your credit limit every month; consider that your spending ceiling. Purchase only what you can pay off in full every, single month when your credit card bill comes around.
Catch more of our Nitty Gritty Guides for college students over the next couple weeks, covering the easy need- to-know info on topics like budgeting, student loans, and debt.
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