We’ve all heard that college is the time for making mistakes, but when it comes to managing your credit, making mistakes could cost your post-college self lower interest rates and thousands of dollars. It’s easy to ignore the real world as it sneaks up at the end of our four years as college students, but in the real world, having good credit is essential. Navigating the enigma of credit can be an arduous task for students who have never learned to manage money, but following these simple do’s and don’ts when it comes to credits can save future you from a massive financial headache.
Do Start Small
In its simplest form, building credit is about proving you are responsible with money. Albert Williams, a professor of finance and economics and the chair of the finance and economics department at NSU said, “Borrowing implies discipline with money.” Lending money is a risky business, so it’s important to start small to prove that you can be trusted to pay the money back. Williams suggests that students get a credit card when coming to college. While credit cards have a notoriously bad reputation, as long as they are used responsibly, they are a great tool for building credit. When looking into which credit card to get, the most important factor to consider is the interest rate. Williams explained that as a first-time credit card user, you most likely won’t have many options, but as your credit grows, so will your options and your credit limits.
Do Add Co-Signers
Applying for a credit card or a loan is often difficult for students who have just started building their credit because companies have no way to know whether or not you can be trusted. One simple way to increase your chances of being approved for credit as a student is to ask your parents to co-sign. By linking your name to someone with good credit, your credibility also increases. When using a credit card with a co-signer, the co-signer has the added benefit of building credit alongside you.
Don’t Forget to Pay on Time
Forgetting or failing to pay back on time, is the biggest mistake that college students make with their credit. Failure to make timely payments shows that you aren’t good at managing money. You may not be offered another credit card or a bigger loan. Additionally, If you don’t pay back on time, the credit card company will send it to the credit bureau — and it takes seven years for it to get off your record. Building and managing good credit is an easier path than rebuilding bad credit which is possible but difficult.
Don’t Go to the Limit of the Card
According to Williams, you should never put more than 30 to 40 percent of the total balance on your card. “Compulsive spending and credit cards do not go well together,” he said. This is especially true because of how accessible credit cards make spending. Going overboard with superfluous spending can make credit lenders question your credibility.
Don’t Get too Many Credit Cards
As a college student, having a credit card can be a helpful tool. After proving your responsibility, you can apply for more cards with larger limits; however, having more cards is not always better. It is never recommended to have more than three credit cards because they become difficult to manage and may decrease your credit score.
The idea of a credit score also deserves an explanation as it is directly related to your credit behaviors. Everybody has a credit score ranging from bad to excellent on an 850 point scale. Elements of your credit score include your payment history, the amount you owe today the length of the credit history, the new credit and the type of credit used. In general, younger people have lower credit scores and the older they get, the more likely they are to have good credit.
If you are like most college students and still have questions about how credit works and how to manage money, Williams suggests taking his personal finance class (FIN 2000) to learn about becoming a financially responsible adult.
