How to Build a Good Credit Score – A Guide for College Students

Young people tend to have extremely limited credit histories when they go off to college for the first time, and are consequently dealing with aspects of what are considered “adult” finances for the first time when they receive student loans. However, as they grow older, they will take on more responsibilities in this way, and as such might want to get a head start on learning how to properly manage these issues going forward.

The first truth that college students need to understand when it comes to how to keep tabs on their finances is that they probably understand very little about them. While many Americans, regardless of their ages or experience in dealing with various accounts, may say they know how to keep their debts down and make all their payments on time, the simple fact is that numerous studies show they largely do not. Moreover, this is particularly true of younger people, who don’t have the real-world experience of managing accounts they rely upon in their everyday lives.

What steps are being taken now?

With this in mind, many universities — and even some high schools — across the country are now starting to make financial literacy courses a part of mandatory curriculum for all incoming students, so that kids will have a better idea of what they’re up against when it comes to dealing with their accounts as they grow older. While the coursework at each school offering these classes will be different, the basic ideas of successful financial management and maintaining a good credit score remain the same. However, even with this new trend, there are still a large number of schools nationwide that will not offer these classes at all.

“Financial basics are rarely taught in high school,” Eleanor Blayney, the Certified Financial Planner Board of Standards’ consumer advocate, told the popular advice site Consumer Affairs. “Almost everything you know about money you had to learn on your own, glean from your parents, or assume you’d figure it out later — when you actually have some money. But here’s the thing: the best time to start financial planning is when you’re young.”

What if your college doesn’t offer it?

When you get to school and are worried about your ability to manage your finances better than many other kids, who might simply spend until they run out of money, then ask their parents for more, it’s important to keep in mind that your credit history is going to be limited, and that your student loan bills won’t even come due until you graduate.

However, many college kids also take the time to obtain credit cards in their first year or two in school, and that’s where they can start to run into serious trouble. Even cards designed specifically for students can come with high interest rates and maximums, meaning that it can be easy for those with limited experience in handling such accounts to rack up significant debt, in the thousands of dollars, and then have problems paying it back every month. These two factors alone — borrowing history and the amount of debt a person carries versus what they are allowed to take on across all accounts — make up the first- and second-biggest credit score considerations in determining a person’s rating, accounting for fully 65 percent of that score.

And thus, when it comes to properly managing your accounts, the simplest thing you can do is keep your spending as low as possible, especially when you’re first starting out borrowing. That will help to ensure that your balances never grow so large you can’t pay them back within a month or two, and that interest never starts to seriously accumulate. Keeping debts low also allows you to be assured that you’ll be able to make all your payments on time and in full every single month.

A great way for college kids in particular to start getting themselves mentally prepared for this kind of spending habit is to begin as early as possible when it comes to carefully managing accounts. For instance, if you have a debit card, either prepaid or attached to a standard checking account, you might want to only put a limited amount of money into it each week or month (or have your parents do it) so that you’ll know exactly how much you should be spending, versus what you might try to spend otherwise. That might teach you how to stretch your weekly budget just a little bit farther, which in turn can reduce other concerns down the road.

Finally, you might also want to keep close tabs on a type of document that will be new to you: your credit reports. By doing so, you might be able to determine whether there are any unfair markings dragging you down. Contacting a credit repair company about the issue may help you to sort it out quickly.

Posted in Credit 101
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