To the everyday college student, the term “credit” may not mean much. Many of them may feel it’s something only people their parents’ age and older have to worry about. In the meantime they focus on their college studies, and think they don’t need to worry about their financial reputation.
But that couldn’t be further from reality.
Building credit and maintaining good credit history are crucial in building one’s financial future. And, believe it or not, an adult actually can and should establish and build their credit history in college. The earlier, the better, actually.
Even more unbelievable, they can actually maintain a healthy credit history just by paying their rent on time. Besides studying, college students
FIRST OF ALL … What Is Credit?
“Credit” is a person’s reputation as a borrower, indicating to lenders how likely a person will repay their loans. It is made up of information gathered from a person’s borrowing history, mostly coming from credit reports.
If a person needs or wants something that is beyond their budget, or if they don’t have enough money to buy something, like a motorcycle, a computer, or a car, for example, they can apply for a loan through a lender, which is most times a bank of some sorts. If approved for the loan, they can borrow money from this lender, then they are able to get what they originally wanted but couldn’t afford. And this borrower is given a payment plan to pay off the sum overtime, and the lender makes money by adding interest to the original borrowed sum. This is how the banks benefit financially.
Borrowers need to have a good credit history to get loans – or to secure financing for furniture, or, perhaps, for even an expensive computer. Employers often check a prospective employee’s credit history (for various reasons, but most likely to get a feel for their integrity, character and sense of responsibility), and a landlord is more likely to sign on a tenant if their credit – or at least the credit of their co-signer – is in good shape. Those who apply for loans (for an automobile, or for student loans to pay for college tuition, etc.) are more likely to get them when they have good credit history as indicated by their credit report.
Lenders, landlords and other service providers who want to view a person’s credit history can do so by viewing that person’s credit report.
Four parts of a Credit Report:
1. Personal information – this includes a person’s name, their past and current addresses, date of birth, Social Security number and past and current employers.
2. Credit history – this is the main section of a person’s credit report. It has credit card and loan information, including payment activity (how much a person borrowed and whether they paid on time or not).
3. Inquiries – this section lists the people who have requested to see a person’s credit report. A person is able to prevent lenders and other people from accessing their credit report by placing a Security Freeze on their file.
4. Public records – this section includes information on bankruptcies, foreclosures, lawsuits, wage attachments, liens, judgments and debt information provided by debt-collection agencies.
(A student, or any other person for that matter, should check their report for errors, which can also help prevent identify theft. People are entitled to one free credit report annually, though companies usually charge a fee for a person to access their own credit score.)
A person’s credit history affects their credit score, which is a quick and simple way for a lender to check a person’s credit history. A credit score is an accurate indicator of a person’s credit history. It’s the number assigned to a person by credit-reporting companies based on information available in their credit report. Higher is better.
A high credit score means, to a potential lender, that a borrower has a high probability of repaying loans on time – so they get loans more easily and with lower interest rates.
Breakdown of What Makes up a Person’s Credit Score
WHY IS CREDIT IMPORTANT TO THE COLLEGE STUDENT?
Believe it or not, college is an ideal time for a person to start building their credit score. After college, most people will go on to decent-paying careers and will be able to provide a nice life for themselves.
They will need a good credit score to be approved for home loans, car loans and credit cards, because a good credit score indicates a good credit history, which means a lender can rely on them to make their payments on time. It essentially means they are trustworthy with borrowed money.
In college, a student builds credit, generally, through properly managing their finances. They can do this through opening a bank account, if they haven’t already, because credit reports include financial information from the very beginning of one’s credit history; they can become the authorized use of their parents’ credit cards; they can also create early habits of living within their means; they can even apply for a credit card, and they should monitor their credit.
College students can also build and establish their credit by paying off their bills promptly every month, every time a payment is due. Whether it’s phone bills, rental fees, student loans.
Since repayment history comprises the largest portion of a person’s credit score (35 percent), college is the perfect time to get into good habits of making payments on time. It helps a young person keep their credit clean, safe and positive.
FINALLY – BUILDING CREDIT BY PAYING THE RENT … ON TIME!
Even simple things like paying the rent and the utilities bill on time can count toward building one’s credit and maintaining a good, healthy credit score and credit history.
Many college-age students live in apartments. So most of them are already building their credit.
Since most landlords want to know if their tenants are trustworthy individuals with their finances, so that they do not give an irresponsible person an apartment (someone who does not pay their rent on time), they will do background and credit checks on them before they lease someone an apartment.
Depending on someone’s credit score (the higher the better) the landlord can deny leasing someone an apartment. (Of course, an eager landlord may overlook poor credit and let on a tenant anyway, or they may require the signature of a co-signer, someone, like a parent or guardian or family member, who does have good credit and who can sign on behalf of the college student with bad credit.)
And the landlord will most always retain their tenant’s information to keep track of their credit history while leasing them an apartment. The landlord, to protect their own financial assets, will probably be advised (or even required) to submit a tenant’s personal and financial information to their own lender – since most times a landlord will not own every bit of residential space they lease, and they will most likely be making monthly payments to this same lender.
When a college student signs a lease for an apartment, they are most times already in good credit standing. When they sign the lease, their information is recorded and documented by creditors and lenders for future purposes.
And every time they make a payment on time (which includes utilities), it is considered part of their credit history – and they are thus helping to maintain a positive credit history, because they are engaged in a financial agreement, one in which they are upholding their part of the original bargain, which is their monthly payment for rent and utilities.