Building credit probably isn’t something you want to think about going into your freshman year of college. Heck, it’s not even something people in the “real world” want to think about!
But your credit score and credit worthiness play a big role in how you’ll navigate the world. From buying a car to renting a better apartment, your credit history matters.
If you’re just out of high school or about to graduate, your credit score is probably farthest from your mind. But before you pack up the U-Haul and move to school this year, try to give it some thought!
Unfortunately, colleges and universities rarely offer personal finance courses. It’s up to you to figure it out as you go!
So let’s take a look at some of the basics of building credit before you pursue your higher education.
5 Concepts to Understand Before You Take Out Your First Credit Card
Your credit score reflects how well you manage debt. One of the easiest ways to build credit is with an introductory credit card.
Every student’s credit needs are different. There’s no one size fits all credit card when you’re in college. But the following are some things to consider before making a decision on what’s right for your first time credit card.
Pay Your Balance in Full
You’re a freshman in college. You’re trying to navigate classes, living alone, and paying your bills. It’s a lot to handle! But the biggest lesson behind having a credit card is to pay your balance in full every month!
Credit card companies make money if you don’t pay your full balance each month. Your balance rolls over to the following month with interest added. And the interest on credit cards is usually high! For introductory credit cards it’s not uncommon to have rates between 25 and 30% APR. If you only make interest payments or minimum monthly payments, it could take years to pay it off!
Keeping up with your monthly balance results in a net positive for your credit score. Making payments on time shows lenders you’re trustworthy. In fact, 35% of your FICO score is your payment history. So keeping up with your payments can affect your credit score in a major way. Poor credit scores are hard to rebuild, so stay on top of it!
Staying on Top of Your Credit
Modern apps and tools make it a breeze to keep track of your credit building. For starters, your credit card provider likely has text alerts. Get reminders about upcoming bills, unusual spending, and more. Apps like Turbo do a deep dive into your credit and keep track of your credit score in near real time.
Finally, in conjunction with a working budget, your first ventures into credit can be tracked. See where you’re spending your money and lay off those late night bites if your credit card is getting out of hand. Building credit is a part of growing up. It can take years to get a good handle on what it all means. But when you’re going into college, it’s a great time to start building up your credit history. It will make it easier to make money moves after you finally get your degree.
Finally, there’s no rush to get a credit card if you’re worried about the responsibility! You can still use a debit card for the first few years of college to get used to paying bills on your own. Debit cards are tied to your bank account, so you can never overspend. It’s also worth mentioning that your student loans affect your credit score as well. So if you borrowed money to go to trade school or even community college, those credit lines all give you a boost.
Taking on credit and debt comes with responsibility so make sure you’re ready for it!
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