You know the saying “I wish I would have known then what I know now?” This is one of those things they’re talking about.
College is synonymous for long hours in the library, unpaid internships, and the place where you perfect your beer pong skills. But it can also be a time where you lay the groundwork for a financially fit post-college life, and this guest post from Brett Napoli at Credit Updates gives phenomenal information on how to do just that. So have a read and start setting up your future self for a life where you can have your cake and eat it, too. Because you know we all love cake.
CreditUpdates.com has routinely cautioned college students about the impact their current spending habits will have on their financial future, noting that many college-educated professionals are still saddled with substantial outstanding debt and a poor credit score to match more than a decade after graduation. Through its credit monitoring, credit reporting, and fraud resolution services, CreditUpdates.com has helped many of these individuals improve their credit score and reduce the impact of the bad habits they adopted during their collegiate years.
The following seven credit score tips are designed to help college students build a solid credit score while developing sound financial habits that will repeatedly reap substantial rewards well into the future.
1. Take Full Advantage of Credit Reporting and Monitoring Services
Each of the three major credit bureaus is required to provide consumers free access to their credit report on an annual basis, which means that college students can request a full credit report three times per year. It is critical that students become familiar with all the relevant details associated with this report so they can better understand how to establish and maintain a consistently outstanding credit score.
It is absolutely worthwhile for students to take full advantage of the availability of credit reporting and credit monitoring services, as these services can provide immediate updates whenever a change is made to the credit report. Given the fact that students are often viewed as prime targets for fraud and identity theft, credit reporting and credit monitoring services can be especially valuable as a preventive measure as well.
2. Sign Up for a Credit Card or Become an Authorized User
The overwhelming majority of students enter college with very little credit history, and there are certainly numerous examples of students who enter college with no credit history at all. In order to secure credit for important future purchases, students have to start building their credit at an early stage. The best way to accomplish this without assuming much risk is to sign up for a credit card offering a reasonable line of credit.
Of course, this requires personal restraint, and the purpose of the credit card is not to enable impulsive spending habits. Students have to remind themselves that the credit card exists as a means for building credit and nothing else. Any expenses that are charged to the credit card should be paid off in full at the end of the month, and any expense that cannot be paid off in full should be avoided whenever possible.
In the event that a student is unable or unwilling to secure a traditional credit card, they can instead opt to become an authorized user on a trusted family member’s credit card account. The spending habits and payment history of all card users will be reflected on the credit reports of all users, so both the student and the family member should exercise a great deal of caution when opting for this approach. Guidelines should be clearly delineated before entering into an authorized user agreement to ensure that all parties experience a positive benefit in terms of their credit score.
3. Establish a Credit Payment History
Once the student has secured a credit card, they have to actually use the card to establish a solid credit score. This requires a great deal of restraint on the part of the college student, as it is quite easy to exceed pre-set budgetary limitations with a credit card. The best approach is to limit the card for use on a single monthly expense --gasoline or groceries, for example --that can be paid off in full at the close of each statement period. An active card with ample available credit will go a long way toward bolstering a college student’s credit report.
4. Carefully Manage Outstanding Balances
Credit utilization ratio is perhaps the most essential credit score concept a college student must understand, as carefully managing this ratio will play an important role in influencing a student’s ability to build and maintain a strong credit rating. The credit utilization ratio measures how much credit has been used relative to the total amount of credit available, and most experts agree that a credit utilization ratio should remain within a range of 10 percent to 30 percent at all times.
Managing this ratio can be accomplished through an attentive approach in which the outstanding balance is paid in full each month. This will ensure that a large percentage of the credit offered to the student is always available to the student. It is worth noting that even though the credit utilization ratio can also be lowered by securing an extended line of credit or by adding another credit card, the majority of college students should avoid this approach if at all possible.
5. Set Monthly Bills on Auto-Pay
College students have a tremendous amount of responsibilities to manage, and monthly bills are often placed far too low on the priority list. A college student seeking to establish a quality credit score must realize that 35 percent of their score is determined based on payment history alone. Payments that routinely arrive late or are not paid in full will have a significantly negative impact on the student’s credit score, so taking advantage of auto-pay options can ensure that bills are consistently paid on time and in full.
College students living off-campus with roommates have to be cautious when it comes to splitting the various costs of living. Choosing responsible and trustworthy roommates is a good first step, and no student should enter into a housing agreement before creating clearly defined and agreed-upon responsibilities that apply to everyone sharing the living space. This includes the payment of living expenses and utilities, as one roommate’s failure to pay their share of a monthly utility bill may adversely affect another roommate’s credit rating if the bill is late or not paid in full.
6. Exercise Caution With Student Loan Debt
Unfortunately, many college graduates spend a decade or more working to pay off their student loans, so every college student should do everything possible to avoid making student loan payments into their 30s and 40s. Students should recognize that these loans are strictly for educational purposes and should not be used for any other reason, as this perspective will ensure the student seeks the absolute minimum loan amount to pay for legitimately necessary educational expenses.
A number of student loans do not begin accruing interest until after the student graduates, so the student should work to pay down the balance as much as possible while still attending college to avoid the interest that tends to pile up following graduation. This will make it more manageable for the student to pay back the loan and will reduce the impact the outstanding student loan has on the student’s credit score.
7. Adopt Strategies Designed to Prevent Fraud and Identity Theft
Fraudsters tend to make their living on the naiveté of others, which is why college students are often targeted in credit fraud and identity theft schemes. Credit reporting and monitoring services will ensure that swift corrective action is taken, and the availability of fraud resolution services makes it much simpler to correct any of the issues associated with fraud and identity theft. Even with these valuable services in place, students have to exercise caution and take preventive measures to avoid being victimized in the first place.
Every student should be hesitant to disclose personal information unless they are absolutely sure about how that information will be protected, and they should immediately remove themselves from any situation in which they feel unsure about the safety of disclosing sensitive personal information.
Now it’s your turn to share: what did you do in college that hurt you financially? What are you doing now to turn your credit score around?