How To

Financial Management: Jump Start Your Credit History

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Building a good credit history during your college years is certainly not required for a healthy financial life — but when done correctly, it will definitely put you ahead of the game. It is simply part of any good financial management plan. With that in mind, we’ve listed five easy ways in building a great credit history while you-re young.

1. Be a college student.

Already are? Superb. College students have an almost superhuman leeway from financial institutions in terms of credit extension and instability tolerance. Lenders understand, for example, if you change your address frequently during the past few years; after all, dorm- and apartment-hopping is almost required during those years. For almost anyone else, though, such shifty switching can be seen as instability. Imagine your professor changing houses every eight months, and even you’d start to wonder what he was avoiding.

2. Get a student credit card.

The easiest way to ruin your credit during your younger years is to handle a credit card irresponsibly. Having said that, if you pay attention to sound financial management principles, then this will likely be the easiest time for a person without credit to establish a good line. Lenders are willing to take a risk to extend credit to you, because you’re going to become a potential revenue source once you’ve grabbed your degree. Lenders might even expect parents to bail their kids out, lessening their risk even more. So grab a student credit card — just one, since this isn’t a bowl of candy at Halloween — and start using it well. That new piece of plastic is a double-edged sword, and if you can’t master the next step, you should avoid getting one altogether.

Take advantage of your student status. Many student credit cards have great rewards tailored just for you. These rewards are even better when you spend wisely and handle your credit responsibly!

Points and cash back. Choose between cash or great rewards.

Citi® mtvU™ Platinum Select® Visa® Card for College Students
0% APR for 6 months and points for good grades & some purchases.
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Discover Student Card
0% APR for 6 months and up to 1% cash back.
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3. Handle your credit card responsibly!

It may seem like a well-trodden topic by now, but if you don’t utilize your credit card responsibly, your credit will suffer in the long term.

Pay your bills on time! Some people may think its okay to let the bill slip for a month or two and just pay it off when you have the full sum. Don’t! Unlike dodging your buddy Bob for that pizza money last week, failing to meet your obligated payment to a financial institution will have consequences beyond just a cold shoulder. If for whatever reason you can’t pay the amount in full, at the very least have more than the minimum payment ready by the due date.

Pay your bills in full. Student credit cards have notoriously high interest rates, and finance charges can accumulate easily. You don’t need to keep a balance or accumulate interest in order to build credit, so pay them in full!

Remember to only charge on items that you can pay off fully within the monthly billing cycle. The minute you spend your credit beyond your earning means, you step into a world of trouble. While you’re paying on time and paying in full, keep your balances low as well — generally below 30% of your credit limit.

Simple strategy: Obtain a student credit card and charge your monthly cell phone, cable, or gym membership bills to it. Sign up for your checking account’s online account and set the bill pay feature to automatically pay your credit card every month. Put away your credit card and don’t use it. Voilà . You’re now building credit in your sleep.

4. Get a student loan if you need one.

If you already have one, that’s perfect: When you’re building a credit history, it’s a good idea to have a different mix of credit accounts. Having an installment loan (like as a student loan) will help diversify your credit profile a bit from other types of accounts, such as revolving accounts.

A credit card is a revolving account; that is, an account with no set term on when the entire balance must be paid back. In a revolving account, your balances, credit availability, and amounts owed can change as you make payments to the account. Unlike revolving accounts, installment accounts have a fixed number of payments — mortgage and auto loans also fall into this category.

5. Hitchhike a ride with someone else’s good credit.

One sure-fire way to get an instant credit history is to have someone add you on as an “authorized user” on their credit card account. With that strategy, the person’s account along with its entire history (good and bad) will show up on your credit reports.

As with other suggestions, there are a few things to watch for. Since all the account history will transfer over, if the account onto which you’re being added has had late payment in the past, you may actually be hurting your credit. Choosing a responsible person will also be important, as his (and your) future credit utilization on that specific account will also reflect on your credit history.

Simple strategy: Have your parents or trusted loved ones pick out a credit card with the longest positive history and have them add you on as an authorized user. Grab a free credit report from after a few weeks and check if the account is reflected on your credit report, as some card issuer don’t always report authorized users to the credit reporting agencies. If the account doesn’t show on your credit report, have the person who added you contact their issuer to see if they can report your account to the reporting agencies.

If you’re a parent and you’re considering this method for your child, remember to pick out a card with the longest positive history. You should also consider making limited purchase on that particular account as to keep the balances on the account low and allow easier on-time payment — both are factors that will significantly help your child’s credit history and score. Your child will thank you for the sound financial management in the future.