When you’re in college, you have different problems and challenges than you had while you were in high school. The freedom of college is both refreshing and scary.
Credit can be a very big hurdle for many college students. You probably have a job, either part-time or just during the summer months. But you probably don’t make much money. Just enough for the essentials: gas, car insurance, movie night, pizza night, clothes.
But you’re starting to hear that you need to build credit so when you do get out of college and land your first “real job“, you can get a car and a decent place to live.
How do you build credit? And how do you keep it under control once you’ve got it? You’ve heard the horror stories, mostly from your parents, about college kids ruining their credit history by splurging on pizza and lattes, movies every Friday night, and designer clothes.
But you’re different, and you need to build credit. It’s a “right of passage”. And it’s important.
Here are some relatively simple ways to build your credit, and keep it under control while you’re in college.
1) Get a department store credit card, preferably with a small spending limit
Ironically, department store credit cards are a great way to build early credit history, when used properly. They’re considered a revolving credit account so they rank well in your score. But it is imperative that you do not go hog-wild and max it out on clothes, shoes, or holiday gifts for the family. Wait for a sale, use any coupons that came with it (perk!), and buy one or two sensible items that complement your wardrobe. Then pay the bill off when it comes in. Don’t extend the payment over more than two months – period. Then repeat next quarter. Wait for sale; buy good, sensible items; pay your bill and avoid personal loans for bad credit. And one more thing, don’t keep the credit card in your wallet. Keep it locked up safely in your room. Only take it out once a quarter for a sensible purchase to help build your wardrobe and your credit.
2) Get a gas station credit card
Use it once a month for a tank of gas, pay it off the next month. Always. Use cash the rest of the time for your gas. If you get in the habit of putting all your gas on the card every month, and then trying to pay it off when the bill comes in, you may just find that you’ve already spent the money you had set aside for gas on something else when the bill comes in (food, movies, clothes). This is an extremely dangerous habit and should be avoided at all costs – and at all ages. This rule isn’t just for college students.
3) Get a bank credit card
This one can be really small, a $500 spending limit works great. Just like the department store credit card, don’t keep it on you. Repeat: don’t keep it in your wallet! But once a quarter, take it out and use it for your gas tank or a coffee or a movie (notice it’s or, not and). Then pay the bill in full when it comes in. The reason you need a bank credit card is because you may find yourself in need of car repairs, and unless your department store credit card is Sears, you’re out of luck!
One additional note when deciding which bank credit card to apply for, do some homework first and choose one with a $0 annual fee and a low interest rate. Forget about points and rewards for now. That’s just another cycle people find themselves getting into where they use their credit card for everything ‘just to get points’ so they can buy a low-quality mp3 player and pay $19.99 for shipping and handling. You don’t need a rewards card in college. Wait until you get your first job and you’re traveling, that’s where rewards cards win out.
The important thing to remember is that when you’re in college and on a tight budget, you can slowly and carefully build your credit history (obtain credit, use credit sparingly, pay bills on time, every time). One missed payment can mess up your burgeoning credit history – and if no one ever told you this little factoid – having too many credit cards in relation to your current salary hurts your credit score.
So choose wisely. Don’t open a credit account just to get a coupon somewhere. Choose a department and gas station credit card where you think you will shop frequently over the years and will reap the best benefits over time from receiving their coupons and special savings mailers.
Soon enough you’ll be out of college and applying for your first car or home loan and your good credit history will serve you well.