You have most likely heard people talk about the importance of having good credit. It’s also likely you were never taught what “credit” even means or how to improve it. Let’s face it, you probably didn’t learn about it in high-school, and you probably didn’t learn it in college either!
Simply put, credit is your ability to buy things now, based on the trust that you will pay for it later. Of course, you can cross your heart and hope-to- die that you will pay for that 70-inch TV later, but without a proven track record, no one can believe you.
Credit is developed by consistently fulfilling that obligation on time (like your monthly credit card bill, car payment, mortgage payment, etc.). Credit is expressed on a numerical scale from 300 – 850 (850 being a perfect score).
Don’t worry, no one is perfect, but the optimal score that banks and credit unions want you to have is about 720-740. The higher your score, the more a financial institution can trust you. What this means for you is higher trust equates to better benefits.
You might be tempted at some point to simply ignore the whole credit game altogether and go through life on your debit card. I know I was, and sometimes I still am! However, poor credit scores can make health, car, and life insurance more expensive. It can become difficult to get a cell phone contract or even an apartment!
Good credit is important to avoid problems while moving through life, but it is absolutely necessary to progress financially. You don’t want to live in your parents’ basement for the rest of your life or drive that beater multi-colored Honda Civic your dad drove while he was in college. Good credit is necessary to make big purchases like a that 70-inch TV, a new car, or a house.
Okay, so it’s important, but what should you even do? Here are 3 things college students can do to build good credit.
1. Get a credit card.
Get a credit card and stay on top of it. Getting a major credit card (Visa, Mastercard, American Express, Discover) helps get your credit score into the 700’s and enables you to apply for car loans, house loans, and others.Try to find a credit card that offers no annual fee that also has a low interest rate.
Use your first credit card to pay for small, frequent purchases like gas and groceries instead of big purchases like a mattress or the TV. Using the credit card for the frequent little purchases makes it easier to pay off every month because that is money you would spend no matter what.
What if your credit is too low to even get a credit card? Don’t worry, there’s a way out of that.
Most banks and credit unions offer secured credit cards. Secured credit cards are low limit credit cards meant to help those with bad credit recover. They are similar to prepaid credit cards – you pay a certain amount to open the card, that amount is now your credit limit.
Then you pay off the balance like any other credit card, allowing you to rebuild your credit. That amount you paid to open the card in the first place is the collateral the institution holds in case you fail to make payments. That is how the institution protects itself.
Utah Community Credit Union offers a special “Build Good Credit Loan” for those looking to recover from bad credit or strengthen the credit the already have. To learn more, come into to any of the 15 locations http://www.uccu.com/home/uccu/locations.
2. Keep debt low
When you have a credit card, keep the balance well below the limit. Most financial institutions recommend staying below 70% of the credit limit, but staying around 30% of the credit limit is optimal.
You may have heard the term “maxed out my credit card.” Maxing out a credit card means using your credit limit, and this can make it very difficult to pay off. It can also get the credit card locked, which will deny any further use until it is paid off.
Keeping the balance low (by paying it off frequently) shows that you are living within your financial means and that you could handle more responsibility (like a car). Credit Cards will have a minimum monthly payment required on all standing balances. Be sure to pay more than the minimum amount in order to pay off debt faster.
Tip: If you are unable to afford the minimum monthly payment, you have taken on too much debt and need to curb your spending.
If you already have a credit card, you are paying it off, and you are keeping the balance low, the next step is to get another credit card. Two credit cards working to improve your score is better than one. The same principles apply to the second credit card as the first. Keep the balance low and pay it off every month on time.
Don’t become a credit card collector- don’t get a second credit card and then never use it, an inactive credit card can actually push your credit score down. You could buy a pack of gum, then pay it off that next day and the credit card will stay active and keep building your credit.
Many credit cards offer special benefits like miles or points for airline ticket purchase and other products; shop around a bit to find the best one. Start your search by visiting the UCCU credit card page here: http://www.uccu.com/home/loans/visa
3. Stay consistent
Stay at the same job for longer periods of time. Financial institutions want to see reliability and stability. If they see that you change jobs every couple months, you will look too risky. While still in school, it is not uncommon to change every 5-6 months. After college, however, it is best to stay for at least 1-2 years.
Stay in one place. Again, the goal is stability and reliability. Moving apartments every few months looks risky. You could be moving for perfectly legitimate reasons, but the creditors won’t know that. Frequent moving could indicate inability to pay rent, as well as other financial irresponsibility.
Of course, the most important way to stay consistent is to pay all bills on time and in full. Late payments on things like utilities, phone bill, credit card, and other loans can all negatively impact your credit score.
Your turn: What are some other tips and tricks for building good credit? Be sure to share this article with your friends and family so they too can progress financially!
By Kelby Gatrell
Kelby Gatrell is the Social Media Marketing Intern at Utah Community Credit Union. He currently attends Brigham Young University in Provo, Utah, and is double-majoring in Business Marketing and Russian Studies.