For students and graduates, the time is now to build credit so you can buy a car, rent an apartment and build credit history
Having good credit history proves to landlords, banks, credit card companies and employers that you are creditworthy. Experts recommend getting started on it as early as possible with these tips:
1. Get a credit card. The best way to start building credit is with a credit card, but Roger Douville formerly with A+ Federal Credit Union in Austin, Texas, says it’s important to wield credit responsibly.
“I would recommend that they choose only one credit card to make those purchases that they know they can pay off at the end of the month,” he says.
If you’re not qualified yet to get a credit card on your own, you can become an authorized user on a parent’s card, which will help build your credit as long as your mom or dad pays the bills on time. You also can get your own student card if you have a minimal income while in school, or get a secured card, which requires a deposit.
Pay off your card balance every month. It will save you from having to pay interest charges, and you’ll be building your credit history.
2. Consider a credit builder loan.
A credit builder loan, available on some websites and with some banks, is a secured loan, in which you deposit the amount of the loan with the lender ahead of time and then make monthly payments to “pay it down.”
Your loan payments will be reported to the credit bureaus, which will help build your credit score. And since you put down a deposit, the lender isn’t taking a risk on a new borrower with no credit history.
3. Make card payments on time.
This is crucial to building a good credit history and a solid credit score. Late payments sink your credit.
While it’s ideal to pay your card in full every month, make sure you at least make the minimum payment on time. But, remember, balances left on your card are subject to high interest rates.
4. Pay student loans on time.
Even if you’re an authorized user on your parent’s card and not responsible for making card payments on time, credit card usage isn’t the only thing that affects your score; your student loan repayment history does as well.
Once those loans come due, set up a schedule or automatic withdrawal from your bank account to make sure you are making your payments on time. If you can’t afford the payments, call your loan officer and try to restructure your payment plan so that you can make the payments.
While one late payment doesn’t seem like much, it will lower your score and lessen your chances of getting approved for a rewards credit card, an apartment lease and a car loan.
Just like getting that degree, a little patience and discipline can set you on the right path to good credit and an easier life out in the real world.