How to Maintain a Good Credit Score in College
For high school seniors, spring serves as a rite of passage. It’s a time when boys and girls become young men and women, highlighted by high school graduation and the excitement – for many – of college in the fall. It doesn’t matter whether you’re going away to school or living at home and attending a local university or a community college, there’s a lot of planning that’s involved in the adventure. One that should not be dismissed is planning as it pertains to your financial future.
Yes, we’re talking about building credit and maintaining a good credit score – and there’s arguably no better time to start than the summer before going to college. While you may not think that credit scores matter at 18 years old, falling into bad habits can have a huge impact on your future financial potential.
Why Credit Matters
There are many factors that play into the FICO score calculation. One is credit history, which is why it makes sense to start building it around the time you’re going off to school. Other factors behind a good FICO score include the mix of credit you have, new credit, payment history and debt owed. It’s why now is a great time to apply for that first credit card (if you don’t already have one) and start developing good financial habits. Though there’s a common misconception that a credit score is something that you’ll only have to worry about later on in life, things like student loan interest rates and apartment leases are often at least partially judged by credit score.
Getting that First Credit Card
You should already have a debit card linked to your bank account, but if you don’t have a credit card yet, now is a perfect time to get one. Credit cards are a great way to build credit while you’re in college, and many of the big brands offer good options for students. For cash-strapped college kids, we’d suggest applying for a credit card with no annual fee, good rewards or cash back opportunities on purchases and fraud detection alerts. We’d suggest selecting one credit card and applying for it. Refrain from applying for several at once, as new inquiries can cause your score to take a hit.
Other Tips for Building Credit in College
Building credit in college is all about developing good financial habits, and proper use of your first credit card is great practice. For instance:
- Make your payments on time: Payment history accounts for 35 percent of your FICO score, so missed payments that are reported are going to cost you.
- Pay off your balance: Try to only use your credit card if you know you’ll be able to pay it off or in the case of emergencies. Minimally, you want to try to only carry a balance of at or less than 30 percent of your total credit limit from month to month. Carrying a balance of anything more than this will lower your credit score.
Some other tips for building credit in college include:
- Pay your rent, utilities on time: If you’re staying in the dorm, lodging is configured into your room and board. But if you have an apartment, you’ll likely be on the hook for rent and utility costs. Make sure you pay these on time too, or you risk being evicted or having late payments reported to the credit bureaus.
- Check your report: You’re entitled to one free credit report per year from each of the three bureaus, so make sure you get it, understand it and ensure there are no errors on it. If there are errors on your report, dispute them immediately.