Tips for Students on How to Build Good Credit
When a student goes off to school they often experience their first taste of freedom, including in the area of personal economics. Securing a good credit score is something that will make that transition easier and could help throughout their life. A student will often start out with a low score due to their lack of credit history, but there are several ways for them to improve their rating.
Improving a student’s credit score
Due to recent changes in the regulations governing the credit card industry, companies are no longer falling over themselves offering students the chance to put their name on an account. This is probably a good thing since many students became trapped in bad debt situations. Still, there are ways for a student to get credit and work on improving their rating.
- Get a card – It is an unfortunate fact of life but the only way to build good credit is to have credit. Getting a credit card or two is the first step in this direction. Look for a card with the lowest interest rate possible and no frills. While the extras can seem like a good idea, they frequently come with a cost.
- Using the card – After a credit card has been secured, make a few small purchases on it that can be paid off easily. Credit rating agencies look at whether payments are made on time and are not worried about how high those payments were.
- Pay all bills on time – Being late on monthly bills is also considered by rating agencies. Consistent late payments will decrease credit scores.
- Keep them current – Generally speaking, the older the credit history the better, but that can be nullified if the account is not kept active over a certain period of time. Issuers could even decide to close an account that is not used, hurting the credit score. Even if they are not closed, they will not carry as much weight on the score. Again, purchases do not need to be large to stay in good standing and they should be paid off immediately.
- Late payment – If there is a late payment but the history is good otherwise, it doesn’t hurt to ask the company if it would be willing to drop the late payment. It would then not appear on the record, which would increase the individual’s rating.
- Check the reports – Everybody s entitled to one free credit report each year so take advantage. From time to time errors will occur that appear on the report and adversely affect credit ratings. If these are found, disputed and proven to be incorrect, that will also improve scores.
A good credit rating means lower interest rates on loans and being more likely to be accepted for larger loans later in life, such as a mortgage. Starting on the path to good credit as a student will pay big dividends as a responsible adult.
This is a guest post from Sandra Hopkins. Sandra writes for a site that compares project management software. She enjoys blogging about personal finance topics and used the tips above to improve her own credit when she was a student.
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