Students often find themselves in a precarious position when it comes to their credit. Typically, students are young and have not had the chance to establish a solid credit history, and so they are basically starting from scratch. This can seem at first like a difficult spot to be in, but if you know some methods of accumulating credit, then you can see it as the opportunity that it really is. Here are eight ways a student can build a good credit history:
1. Make your payments on time.
One absolute credit score killer is late payments on whatever bills you have. Therefore, it is important that you, the student, do everything possible to pay off your bills in a timely fashion. Since your credit score is a reflection of your commitment to financial responsibility, the last impression you want to give a lender is that you are irresponsible. If lenders get this impression, they will typically pass on your loan application and deny you whatever financing you are seeking.
2. Secure a credit card.
You might need some help with this one, particularly given your lack of credit validity, but you should be able to at least get what is commonly known as a student credit card. Or you can check into getting a retail card such as one from Target, or perhaps a department store card.
3. Keep your card balance small for now.
It may not make much sense to keep a balance on your credit card, but it does make a difference. Much of your credit risk involves how you manage the responsibility of a balance. Lenders seeing a zero balance every month inevitably wonder how you will manage larger financing debt. Maintaining a small balance shows lenders you have the discipline to manage not only your credit but your debt as well.
4. No co-signing!
This might seem intuitive but it must be stated. You are trying to build your credit, not that of your friends or family members, and so there is no real advantage to having someone serve as the co-signer on a loan for you. At the same time, be sure that you don’t serve as the co-signer on loans for others (if this is even an option), particularly those in a similar financial situation as yours; if you do this and your co-signer then defaults on their loan, the lender will come after you for payments, leaving you with debt you don’t need and probably a strained friendship as well.
5. Use your student loans wisely.
Student loans are meant to be used for funding your education and should be reserved solely for that. Avoid the temptation to believe that it is fine to use these loans for costs not directly related to attending school, such as entertainment costs that you may justify in your mind as being a normal part of the college experience. Student loans need to be used to pay for such things as classes, textbooks, school supplies, housing and food. For many reasons, you don’t want to come up short on money to pay for school because you’ve spent your student loan money elsewhere, including that doing this can inevitably lead to problems repaying the loan.
6. Keep your spending to a minimum.
One of the hallmarks of mature spending is spending on what you need as opposed to what you want. As a student you will enjoy some independence. Be sure you do not abuse your independence by buying frivolously. You will pay for this in both the short run and long run by developing bad spending habits and having to deal with unnecessary debt for a long time.
7. Develop a financial plan.
Because you are starting out, it is a good idea to develop a solid financial plan. Take a look at your finances and your short- and long-term goals. Based on all this, come up with a plan and stick to it no matter what. This will pay off handsomely in years to come.
8. Take your finances seriously.
You should view your finances as a serious matter and respect them accordingly. Abusing your finances by engaging in bad spending habits and taking on enormous debt will come back to haunt you by making it extraordinarily difficult for you to build a healthy credit history.
As a student, you have an opportunity to establish and build credit through various means, and you should do everything you can to take full advantage of this opportunity. Develop the discipline and spending habits that will keep your credit exceptional and enjoy the rewards that will come from doing this.