You may wonder how to build credit if you’re starting from scratch.
College students entering into the world of independence and big-ticket purchases think of good credit as a far-off goal, but it’s closer than you assume.
Even if you don’t use it now, it can help you rent a place, buy a home or purchase a car later.
People who wait to build credit take longer to reach their financial objectives. Kickstarting the process now means you can dive into adulthood with fewer worries and burdens.
There are some essential things to know about building credit, regardless of what your financial portfolio looks like. Whichever avenue you choose will earn you a polished, high-ranking score once you get informed and apply your knowledge.
1. Use Your Credit Card Wisely
Manage your credit card — or cards! — by paying your monthly balance on time and in full. Minimum payments chip away at your debt much slower, and they allow interest to accrue. Paying $20 toward a balance of $200 reduces some of your debt, but additional fees bring you to square one.
This reason is why many people end up in over their heads with credit card debt. Making consistent payments boosts your credit score, but avoid charging more than what you can pay.
If you don’t have a card yet, consider one with a range of benefits, such as low interest rates, cashback and travel points.
2. Buy a Pre-Owned Car
You might dream of a shiny BMW or a speedy Mustang, but your best bet for building credit is buying a used car. Pre-owned vehicles cost less and add variety to your credit portfolio. Even if you pay all your cards on time, credit companies want to see some diversity among your finances. It’s good to have your hand in several different pots — but only if you can track your expenses.
Credit unions offer financing for used cars, and they often provide affordable interest rates. Invest in a used car now, and you can boost your credit to buy your dream ride later.
3. Pay Your Student Loans on Time
You won’t need to repay your student loans just yet, but they’re a vital part of building your future credit. Students loans come on an installment basis rather than revolving like credit cards, but they still boost your score. Set up an automatic payment plan with your loan holder to ensure you meet the due date every month. Missed or late payments can stay on your record for years, tanking your score despite continued efforts to increase it.
Most loan servicers will work with you to develop a plan suitable for your current financial profile.
4. Build Credit Through Rent and Utilities
Having an apartment in college is even better when your rent and utility go toward your credit score. Simply paying your bills on time and in full can help you establish footing. However, your landlord must report your payments to the three credit bureaus for this to count.
Not all property owners do, which means your payments may not apply. Registering for a rent-reporting service can help you add these fees to your credit report and establish rapport with the bureaus.
If you’re still living on campus, research before jumping into the first apartment complex you find. Ask the landlord if they report payments to the credit bureaus, and keep a schedule of due dates.
5. Become an Authorized User
If owning a credit card sounds too intimidating, hop on one of your parents’ cards instead. You’ll build your credit through their already existing score, and you don’t have to stress over shouldering the responsibility. Getting a card can be complicated due to the Credit CARD Act, which prevents anyone under 21 from applying, but becoming a user is comparatively simple.
Keep in mind that not all card companies or credit bureaus acknowledge authorized users. Depending on who you receive your score from, this method might not hold much weight in building your credit. However, it’s arguably better to have some established credit than none, so consider combining this method with another.
6. Try a Credit Builder Loan
Taking out a new loan can sound scary with student debt looming ahead, but credit-builder loans work differently. Credit builder loans go into a blocked-off savings account that you can’t access until you fully pay the expense.
other valuable tips:
This credit-building method is preferable if you won’t need to access the money any time soon — keep an emergency fund handy. Regular payments will increase your score and bring you a few steps closer to obtaining the loan.
You can apply for one of these loans by checking out your local credit union or bank.
Enhance Your Financial Savvy
Take advantage of available opportunities to build your credit. It’s never too soon to start, and the more prepared you are, the better. A diverse and robust financial portfolio will make you a favorable customer with landlords, lenders, car dealers and more.
And don’t forget to share this article about building student credit with your college mates and friends.
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