In our first part of “College and Your Credit Score,” we talked about what your credit score is and why college kids should care. If you want to get ready (and ahead) in the real world of spending, follow these five simple steps to get your finances in check before graduation.
Apply for the right credit
Before you can get a credit score, you need credit. One of the easiest ways to do this is to apply for a credit card. While you can apply for your own if you’re 18 or older, you may want to consider asking your parents (so long as they have good financial sense) to add you to their card or become a cosigner on yours. This will help keep you from overspending.
If you already have credit, and it’s not very good, make sure you shop around for a card that offers low interest, as well as no signup or maintenance fees. Over time, these extra, hidden fees can add up and cost you even more.
Learn your limits
During your first few months with a credit card, you may be torn on how and when to use it. Make sure you use as much caution as possible. Start by making a budget. Add up your paychecks and any other income, and subtract whatever you spent. If you earned more than you spent, you’re on the right track. If your expenses are exceeding your income, however, make sure you’re extremely diligent with your cards so you don’t end up using them to cover your overages.
Once you know how much you can spend, try using your card only for essential purchases — items like groceries or gas. Each purchase will boost your credit score as long as you stay within your budget.
Develop good habits
Good credit habits start with paying off your credit card each month. When you’re starting off, you’ll want to pay all of your balance back. This will keep you from accruing extra interest or fees on your purchases. One way to do this is to go in daily or weekly and pay off whatever you spent.
If you develop a good habit like paying off your expenses, you may be able to carry a little debt down the road. Just remember that your credit-to-debt ratio should be as low as possible. A 10% ratio (for example, $100 on a card with a limit of $1,000) is considered healthy and won’t overwhelm you when you try to pay it back.
Good habits will also help you when it comes to your student loans. Because you’re not paying back your loans now, it’s easy to forget that they are there. If you have the extra income and ability to do so, you can start building your credit now by simply paying off a bit of your student loans each month.
Check up on your finances
Knowing what your credit score is can be tricky. Your bank won’t tell you, your mom won’t know, and apps or add-ons from the credit card companies will only give you an estimate based on their knowledge of you. Luckily, you can check your credit score for free once a year by visiting annualcreditreport.com. You should do this at the same time every year (a good idea is the New Years).
When you look over your score, also look at the credit lenders and payments made. It should be accurate and list all of your lenders. If you see something unfamiliar, you may be a victim of credit fraud (which can severely damage your finances if you don’t act quickly). If you see something incorrect, call the number listed for the three credit bureaus and ask for a review. They will walk you through how to report something inaccurate or a possible identity theft.
By starting to build your credit score now by checking your numbers, building good habits, and learning the basics, you can have a great head start on the real world. After all, your finances start to matter now, so there’s no time to lose!
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