College & Your Credit Score: Ways to Improve “Real-World” Spending

Facebooktwittergoogle_pluspinterest

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.

 

College-Credit-Prep-for-Real-World-Spending

 

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.

american-express-89024

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.

 

tips-to-maintain-credit-easy

 

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!

Image Sources (1)

College and Your Credit Score: Why It’s Important

Facebooktwittergoogle_pluspinterest

You’ve probably heard your parents talk about their credit score, and there’s always news reports and articles out there on how to get a better one. But, do you know what a credit score is, and why – as a college student – you should care? As an important part of managing your personal finance, having an understanding of how this score can affect you can save you down the road. Here’s what you need to know about your credit score.

CollegeCreditWhyImportant0302

 

What is a credit score?

Credit is any money loaned to you. This could be the credit card you carry around, or the loan you used to pay off your college tuition bill. The history you have with this credit is looked at and evaluated, and just like your tests, you are given a number based on how you have handled and managed it by three credit bureaus – TransUnion, Equifax, & Experian.

That number is your credit score. It ranges from a 300-850, 300 being the lowest and 850 being perfect. The average person should shoot for a 700 or better — roughly the equivalent of a B on a grading scale.

How do you get a credit score?

Your credit score number is determined by many factors. As a younger person with not much history (that is time having credit), your score will most likely start lower in the 5-600 range. To build it up, you will need to have a good payment history and a low debt-to-credit ratio. For example, if you have a credit card with an available balance of $1,000 and you carry a balance of only $200 after making minimum monthly payments on-time each month, your debt-to-credit ratio is 200/1000 or 20%.

However, getting a credit score isn’t that easy. As you may have noticed from applying for student loans without an already established credit score, you may need someone to cosign with you on your loans or credit cards. This is because history is on your side. If you do not have a credit card or loan of some sort, you’ll never get a credit score, and that could hurt you in the future.

Why it’s important to a college student

So why not go without? Why not just avoid credit scores altogether by sticking to your debit card or paying cash?
For one, paying in cash may not be available to you in the future. For example, your car breaks down and you need one to get to work. You can pay for much of it in cash, but you don’t have the funds to pay the rest. Having a credit score can help you get a car loan to pay the rest.

In addition, that credit score will determine the amount of interest you pay. So for that car loan, having a credit score of 500 may mean paying thousands more in interest over time than if you had a good credit history and credit score of 700. This is especially important for larger loans such as your student loans for graduate school or if you decide to buy a home.

credit factors for college students and maximum reporting lengths

And there are other repercussions too! Many landlords look at your credit score to determine if you will pay rent on time, or if you have the history to show responsibility for a regular expense.  Not having a credit score or having an extremely low one may make your chances of getting an apartment or building wealth on your own practically impossible.

As a college student, it is important to consider building both your credit and credit history now. One option is to apply for a very small credit card which you only use for emergencies or a few essential purchases here and there. Pay it back every month and build up your on-time payments. By the four years of college, you’ll have a strong score that will ensure you’re ready for what waits you and your money after graduation.

This is a two-part post on the importance of establishing credit while still attending college. For tomorrow’s post, we’ll outline some tips you can use to make sure you’re able to build (and keep) good credit.