Posted in : Uncategorized on by : Brian Connor Comments:
For people who are just hitting college age, constructing a good credit history may seem like the absolute least of their overall problems. But in the world today, proving your responsibility in financial matters is more important than ever.
A good credit score leads to better interest rates when applying for a loan and/or mortgage. But it can also help you when renting an apartment, and even when going for a job after college. So building credit early will help you in the long term.
Here are a few ways to get started.
1. Apply for a Credit Card
The most traditional way to build credit is by applying for a major credit card and paying down the balance every month. Obtaining a card with reasonable interest rates is hard when you have no previous credit history. There are some programs available for college students, but even these have some difficult requirements to meet.
2. Become an Authorized User on Your Parent’s Credit Card
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 made it that much harder for young people to get their own Visa or MasterCard. Practically the only way someone under 21 years old is going to get a credit card is to have a parent cosign for them. But there is one way around this problem: Ask your parents to allow you to become an authorized user on their credit card.
This is a very common first step in building credit. But beware! There are some problems to think about first. If your mother and/or father are paying their credit card bill consistently, your FICO score will see a considerable boost. However, if they don’t pay, your credit score will be affected just as theirs. Become involved in paying down the family credit card each month. And remember to be considerate of the primary account holder—they’re the ones who are ultimately responsible for paying the balance of the card.
3. Look Into Secured Credit Cards
The temptation of spending beyond your means is a common problem for younger adults. Getting a secured card may be the best option for someone between the ages of 18 to 21 years old. A secured card allows the holder to make an initial deposit as collateral. Your limit will be determined by how much you put down initially.
One benefit to secured cards is that once you show you can pay your minimum balance, a lot of lenders will allow you to upgrade to a normal, unsecure card. How cool is that!?
4. Apply for a Store Card
If you are unable to get a normal card, store cards are usually easier to get. While interest rates may be higher, they won’t matter as long as you keep a low balance. Getting one or to store cards—and spending conservatively—can end up having a great impact on your credit score!
5. Pay Rent to Build Credit
If you are already renting an apartment, your name is on the lease, and you pay each month o time, you are well on your way to earning good credit. The problem is not all landlords pass along your payment history to credit reporting agencies. So the best thing to do in this case is ask your landlord if you can pay thru services like ClearNow or RentTrack. Paying thru these agencies allows your rent payments to show up on your credit report.
The bottom line: Showing responsibility from a young age is important! Having a good credit score affects a large part of your finances. You’ll be happy that you took so much time to build up your credit rating at a younger age.