These tips will help students use cards wisely to build their credit in school and beyond
Credit smarts and financial literacy aren’t required courses in college, but young adults should learn those topics on their own, credit and financial experts say, and preferably, not through trial and error.
According to a September 2016 U.S. Bank survey, 54 percent of college student respondents said they have never checked their credit scores.
Many of those surveyed also held credit misconceptions. For example, 44 percent said that checks and debit cards help build credit (they don’t), and 22 percent said once a delinquent account is paid off, it is removed from a credit report (it won’t be, for seven years).“It’s all too common that we’re not formally discussing credit and talking about what it is with young people,” says U.S. Bank’s Robyn Gilson, coach for financial education and vice president of customer experience.
Too often, college students must school themselves on credit and get up to speed on how it can affect their futures.
Here are nine quick credit mini-courses that students should master:
1. Get credit.
While it might seem like a wise idea not to get a credit card until you graduate, that delay could hurt you. “If you don’t have a decent credit score, it can affect your ability to get a car loan or apartment independently,” Gilson says.
Having a diverse array of proof that you can handle credit is invaluable to be able to do grown-up things in the future.
|\u2014 Samantha Gorelick,|
Wealth adviser with Heron Wealth
Landlords usually run a credit check, adds Samantha Gorelick, wealth adviser with Heron Wealth in New York. “Having a diverse array of proof that you can handle credit is invaluable to be able to do grown-up things in the future,” she says. “Having a credit card and using it responsibly is a great way to start.”
2. Getting a credit card isn’t as easy as it used to be.
Gone are the days when issuers seemed to toss credit cards to students like beads are tossed at Mardi Gras. Since the Credit CARD Act of 2009, anyone under 21 must show an income before qualifying for a piece of plastic.
Now, though, there are student credit cards that are a bit easier to qualify for that offer features and tools tailored for new card users. Often all that’s required is a steady income.
If you’re not yet working, there are other ways students can build good credit. If your parents have good credit, ask them to add you as an authorized user to one of their credit cards. As an authorized user, you’ll be building your credit by piggybacking on your parent’s account – and mom or dad will still be liable for all the charges.
3. Use your card carefully to build your credit.
“You don’t have to carry a balance to show a good credit history, just usage,” says Kelley Long, CPA and a member of the AICPA’s National CPA Financial Literacy Commission.
Video: 4 ways students can build credit
A good way to start building credit is to use a card for a certain monthly expense, such as your cellphone bill, and then pay off the bill each month. “You’ll begin a positive credit history with no added interest charges,” says Long.
4. A credit card “just for emergencies” is not the same as a savings account
“It is important for students to understand that a credit card is not a substitute for an emergency savings account,” says Gorelick.
credit card can help you in a pinch and is a great substitute for carrying around large amounts of cash, putting a big, emergency expense on plastic could leave you paying that debt off for months – and with interest added.
Ideally, students (and all consumers) should charge purchases only when they have the cash in the bank to pay the bill.
Building up a small savings account is a much better way to prepare for unexpected expenses, says Gorelick.
5. Card issuers aren’t as forgiving as student loan companies.
There are a number of repayment options for your student loans if you’re having a hard time making your monthly payment. With credit cards, there is no such thing as income-based repayment or deferrals, says Gorelick.
“If you run up a high credit card balance, the minimum payments will get higher, it will continue to accumulate interest, your credit score will go down, and that cycle will put you in a worse situation with your debt,” she says.
6. Budgeting isn’t something only older people do.
“Living on a budget doesn’t mean going out to eat for the first half of semester and living on ramen noodles for the second,” says Gilson. Or worse – relying on credit cards to pay for a lifestyle beyond your means.
Missing a payment is a significant thing, but know that you can recover. Just call the credit card company and explain, and get back on track.
|\u2014 Robyn Gilson,|
U.S. Bank coach for financial education
However, when used responsibly, credit and debit cards can make it easy to track and categorize your monthly expenses, she says. Understanding where all of your dollars are going, and then learning to make adjustments and better choices is the cornerstone of budgeting.
7. Paying your bill on time is just one piece of the credit puzzle.
Although an impressive 72 percent of Equifax’s 2016 College Student Survey respondents said they paid off their credit card each month, it’s easy for balances to become unwieldy. Paying your bills on time carries the most weight in your FICO score.
Your credit utilization is another factor. “The higher your debt-to-available credit ratio is, the more it will lower your credit score,” says Gorelick. Since most students don’t have huge credit lines, it’s not that difficult to use up a good chunk of that available credit.
For instance, if your first card has only a $1,000 credit limit and you spend $700 on a new laptop that you plan to pay off over time, you are utilizing 70 percent of your credit. Experts recommend staying below 30 percent – and as close to zero as possible – to boost your credit score.
8. If you’re not responsible with your card info, someone can steal it.
Dorm living creates the perfect conditions for having your identity stolen. Computers and tablets are left on, you use public Wi-Fi, not to mention leave your credit cards lying around – all of this is inviting trouble.
“Most important is making sure you have good password protection on all of your devices,” says Gilson. “And don’t make it something obvious like your birthday or your sibling’s name.”
9. Don’t be too hard on yourself if you make a credit mistake.
To help you avoid missing payments while you’re studying for midterms, Gilson recommends setting up text or email alerts as well as auto payments so you don’t miss a due date. Card issuers often will cut you a break on the first offense, and some student cards even include forgiveness for a missed payment.
“Missing a payment is a significant thing, but know that you can recover,” says Gilson. “Just call the credit card company and explain, and get back on track.”