Prove Responsible Behavior
Creditors want to know that the odds are good that they will get their money back before making a loan so the first rule of thumb for students who are trying to establish good credit scores is to always stick to the terms of any repayment plan. This means being on time when paying any bills, including all of the following:
• Rent and utilities
• Installment loans for electronics or appliances
• Automobile loans
• Credit card payments
Bouncing checks or overdrawing an account can also show irresponsible behavior and should be avoided at all costs.
Establish Credit Worthiness
Most students are completely bombarded with credit card offers during their first term on campus. Many find them unable to resist the lure of this easy manner of obtaining cash and assume that this will be a great way to work on their credit score. They apply for several of these cards with low credit limits, thinking that they will only use them in emergency situations. The easy access to money, however, soon results in a huge debt with skyrocketing interest rates. This makes repayment so hard that many college students end up completely ruining the credit score they were trying so hard to establish. Instead of this rash behavior, it is better to improve a credit score in tiny increments with some of the following actions:
• Students should put money on deposit to get a secured low-interest credit card. They should use this card only up to 30% of the balance and pay off the borrowed amount at the end of each billing cycle so that they will not be charged any interest.
• If electronics, furnishings, or appliances are needed during the school term, students should take the small installment loans that are offered, especially if they are interest free and pay them off over the next six month period. Even if parents are furnishing the funds for repayment, it is a good idea to purchase these large ticket items in the student’s name.
• Students should keep all approved credit sources open even if they are no longer needed in order to keep a high line of credit available. The cumulative amount of credit on open cards does make a difference in the strength of a credit score. The length of time that an account has been open is also factored into a credit rating.
• If studies allow, students should get a part-time position to establish a work history before graduation. This can work to prove that they have the means to make payments and can show responsibility and drive.
• Students may want to take out a small loan for a portion of their college tuition or expenses. Financial institutions make getting a loan for educational purposes much easier and the interest rates are usually much less than traditional loans. These funds can be repaid quickly so that very little money is wasted on interest, but it is best to stretch the payments over a six month period to get any effect on a credit rating.
Students should be aware that building credit is difficult and takes time, but credit is so fragile that one careless move can send a credit score tumbling quite easily. Tardiness with paying bills, a missed payment, or high credit card balances carried forward each month can decimate a wonderful score in less time than many think. Those working to raise their scores should get a free credit check online at least every six months to avoid inaccurate entries on their records and to make sure they are always headed in the right direction financially.
Jennifer Lewis writes for a site that has information on women’s college scholarships and believes college is a great time to begin to build good credit.