As a young adult in college, you’re faced with many questions: “What classes should I take?” “What major will I choose?” “How do I build my credit?”
Building credit is not an easy task, but starting early can help you secure the car or apartment you’ve always wanted.
According to Experian, credit is a measure of one’s financial responsibility that determines an individual’s borrowing limit. A credit score is a three-digit number ranging from 300 to 850, influenced by a number of factors. The most impactful factors include payment history, credit usage, and the age of the credit account.
- Payment history is crucial to building credit as it shows lenders how punctual you are on your debt payments. Late payments can impact your credit significantly, causing drops in your score.
- Credit usage is how much of your available credit you have spent and have not paid back (it’s recommended to have less than 30% usage).
- Age of credit shows how long you’ve had open credit accounts. The longer you have credit accounts, the better it looks on your credit report, which is why it’s best to start working on credit as early as you can.
Now that we have a better understanding of credit scores and their impact, where do we begin? If you’ve taken out a loan from FAFSA in your name to pay for tuition, congratulations–you have already opened your first credit account. The next step is to get a credit card and keep usage below 30%.
There are many credit cards designed specifically for students, often with low or no introductory annual percentage rates (APR is the rate at which a bank charges interest on your statement balance) as well as no annual fees.
A Nerdwallet article has compiled a list of some of the best credit cards for students. From personal experience, Discover is a great starter card for building credit.
Now, getting the card is the easiest step, maintaining good credit is key. Experian offers these tips:
- Pay your bill on time. It’s recommended to pay the entire balance before the monthly statement due date, but at least be sure to pay the minimum to avoid any negative impacts.
- Maintaining low credit usage, under 30%, is the sweet spot, as mentioned above.
- After several months pass, request a credit increase from your card issuer. This can be good if your income increases or if you find yourself spending more and want to keep your usage down.
Hopefully, you’ve gained some insight into credit building. Now, you can find the best credit card to start your journey!