Building a good credit score is very important for a young adult just getting started on their own. You’re young and independent, but if you misuse the financial freedom easy credit provides, it can come back to bite you in a big way further down the road. Banks aren’t going to want to lend you the money you need for your first house or a nice new car if you’ve misused your credit during your student years. Here’s three ways to start out on the right foot:
Choose the Right Credit Card
If you don’t have a credit card yet, you’re in the perfect place to get started. Having just one credit card is the best choice as a student—apply for too many cards in a short period of time and it’ll hurt your score. Choose a card that doesn’t have an annual fee and get the lowest interest rate you can. Rewards can be a lot of fun — netting points for hotels and travel deals with every purchase you make — but keep in mind that rewards cards usually have higher interest rates. If you already have a card or three, stick to what you’ve got and just use it smarter.
Use Your Card Responsibly
The best way to build a good credit score is to use your credit card in a financially responsible manner. This means paying off your balance each month, or at least keeping the balance low. The best way to do this is to only use your credit card for smaller purchases. If you want to buy something big, save up the money first. If you’re already maxed out, you can get started on credit repair by working to pay off your card. Take a look at how much money you make each month and how much of that you really have to spend. Save a little extra to put toward your card each month and get that balance back to zero.
Be Smart with Student Loans
Doing the right thing with your student loans is another way to build good credit. First, don’t take out loans for things that aren’t actually related to your education. Many schools will let you take out a loan for "personal expenses" which you can use to get a new car or whatever you like — but don’t do it! Keeping your loan payments low is essential to doing well in your post-school years. Once you’ve graduated and have to start paying that loan off, make sure you make at least the minimum each month.
Pay Your Bills on Time
This one may sound like a given, but many people don’t realize that it isn’t just paying your credit cards on time that impacts your credit. Failing to pay bills can not only result in fines, but it can show up on your credit report along with your credit cards and loans.
It is never too early to start building credit. Having credit is something we all need to survive in the real world, but unfortunately many students don’t think about it until they are already in the real world. By taking a few of these steps you can be sure not to end up as one of those unprepared college grads.