Five Ways to Start Building Credit
Thinking about credit can be intimidating for college students. Your credit score quantifies how responsible of a borrower you are. Scores typically range from 300-850. The higher your score, the more access you will have to better borrowing opportunities. This number is not everything as far as financial wellness, but it is important for a variety of situations. Here are 5 simple ways to start building credit wisely!
1. Open a Line of Credit
One thing that is tricky about credit is that you must have credit to get started building a score. If you have not opened a line of credit yet, consider starting with a student credit card. Some students are able to begin building credit through an auto or student loan alone. Some however, will need a co-signer (a responsible party with a credit history). Whether or not you need a co-signer is specific to the institution you are working with. However you start, starting a credit history is important to begin getting evaluated for a score.
2. Keep Your Credit Usage Low
If you decide to open a credit card account, you will be given a maximum amount you can spend. Once you open a line of credit avoid spending up to your maximum limit. It may be tempting to use your credit cards to fund some of your more expensive wants. Remember that everything you use from the card will need to be paid back. Try to only purchase items you can afford to pay off quickly. Aim to only be using 30% of your credit maximum at a time. This will help you avoid building up debts that you are not able to pay off.
3. Pay Off Your Balance Quickly
Once you have a line of credit open it is important that you pay off your balance as quickly as possible. There will be a minimum payment that is listed each month as “due” after you use borrowed funds. While this required payment may only be a portion of the funds you used, keep in mind that interest will typically be added on any remaining balance. For credit cards, try to pay off the balance before the end of each month. Paying off your balance as quickly as possible will save you on interest in the long run. It also looks responsible and will positively affect your score!
4. Always Pay Bills On Time
Timely bill payments are taken into consideration for your credit score. It is important that you pay your bills on time. Use whatever method you may need to remember. Set a reminder in your phone or write it down in your calendar. Remember, your credit score reflects how trustworthy of a borrower you are. Paying bills in a timely manner is a great habit to make in general. By paying on time, you will avoid late fees which will save you money over time.
5. Check Your Credit Report
Get in the habit of regularly checking your credit report. If you are just starting out, you may find there is nothing on your credit report and that is okay. You want to make sure that what is listed under your name is accurate. Check your report at least annually for any inconsistencies or errors that may be affecting your score. Checking it daily may be too much. We suggest that you check in on your credit once a quarter (once every three months in a year). Keep in mind that it does take time for changes to be reflected in your credit score. You can check your credit report for free at Annual Credit Report.com and you can also check through your bank as well.