With more and more college students facing student loan debt, it’s easy to understand why many struggle with their finances. Between studying for midterms, attending lectures, and working part-time jobs, college students face the challenge of juggling financial responsibilities with making a living. Sometimes this may result in late payments, overusing a credit card, or poor financial decisions, all of which could negatively affect a person’s credit score. For those who are in this boat, how can they build up their credit? Here are 5 guidelines college students can follow to build up their credit.
Use a Secured Credit Card
There are a couple of reasons why secured credit cards are helpful for building up your credit. Unlike unsecured credit cards, secured credit cards have a credit limit that is based on a cash deposit you make. Let’s say you decide to open a secured credit card and make a deposit of $5,000. Whenever you swipe your card, the money is taken out of your account, lowering your credit limit. When you pay off your debt, then your credit limit returns to $5,000. The reason why secured credit cards are safer than an unsecured credit card is that the secured card is backed by your cash which serves as collateral. If you don’t pay off your credit card debt, the lender uses your cash deposit to cover the debt. You also receive your deposit back when you close out the account. Secured credit cards are safer and can help borrowers build up their credit until they can qualify for an unsecured credit card.
Pay off Your Bills and Balance on Time
Another tip to help students improve their credit is paying off bills and balances on time. One of the main reasons why people struggle with a poor credit score is late payments, which can account for up to 35% of the score. Long, overdue payments can knock off almost 100 points off your credit score, according to a study by FICO. Instead of waiting until later to make your payments, make it a point to pay right away so you don’t forget. Another way to prevent late payments is to set up automated payment (provided you keep an eye out for overdrafts), or an alarm that will remind you to make your scheduled payments.
Stick to Under 30%
Even if you’re not If you’re making all your payments on time, did you know that over swiping your credit card can affect your credit score? In fact, financial experts recommend keeping your use under 30%. This ratio is known as your credit utilization, which measures your overall credit limit with your amount of credit usage. So if you have a $5,000 credit limit, you’ll want to keep your usage to under $1,500. Any more than that can cause a negative effect on your credit score.
Become an Authorized User
There’s no shame for college students to ask for occasional help from parents or family members. In the case where a borrower is trying to build up credit, many banks will offer the option to become an authorized user on a family member or significant other’s account. This, of course, is a viable solution if the family member or significant other has good credit, has a history of paying on time, and is willing to let you “piggyback” off their credit payment history. When you sign on to become an authorized user of a credit card, you are given a credit card that is under the other person’s account (or you don’t even need to use the card), and you can reap the benefits of the payment history. Obviously, you’ll want to be on the same page with the account holder in terms of expectations and card usage so use the card responsibly.
Correct Any Inaccuracies on Your Credit Report
One of the most important steps to take in your financial maintenance, college student or not, is to periodically check your credit report for any inaccuracies. Students should note that your credit score is not your credit report, but your credit report will certainly give you a clear picture of your credit score. Your credit report will show you a record of your financial and payment history in the past 7 years. Each of three large credit bureaus, Transunion, Experian, and Equifax will have their own report and you are entitled to a one free credit report from each of the bureaus every year (that’s three reports in total). When you check your report, you’ll want to make sure all the information is correct and does not have any false information. If you found a mistake or inaccuracy, you’ll need to dispute it with the bureau, which can be time-consuming and a slow process. However, companies such as Star Credit Repair can help you find the best credit repair company that can help with your specific case.
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