You have plenty to think about in college, but one of the things that may not be first on the list is building your credit. This is true for all students, international as well as U.S. citizens.
Although it may not be first on the list, it should be on the list. Credit is important to your life, especially when you’re first starting out. Landlords may check your credit score when you try to rent your first apartment, for example. They want to make sure you pay bills on time since your rent check will be one of your bills. They also see a good credit score as a sign of how responsible you are. If you have no credit at all, you may be passed over in favor of a prospective renter who does.
In addition to having credit, it’s also important to have good credit. Good credit is defined as a credit score of 680 or higher. If you need to buy a car, your credit score will be even more important. You likely won’t be able to get a loan if you don’t have a good score, or the interest rate will be higher to compensate lenders for the poorer credit rating.
It’s not just purchases either. Increasingly, businesses are screening job applicants for their credit score. Although your credit has no direct bearing on your job, credit history is increasingly viewed as a proxy for responsibility.
It’s also important to start while you’re in college. According to FICO, 15 percent of your credit score is determined by length of credit history. Waiting until your degree is in hand to establish credit will not allow you to realize the benefits of good credit. Having at least a year’s worth of good credit will.
So, how do you make sure you build your credit in college? Here are the six best ways.
Get a Social Security Number
Social Security numbers serve as all-purpose identification numbers in the United States. A credit card application will almost always ask for your Social Security number. If you’re a citizen, you may already have one. If you don’t, there’s no time like the present to apply. If you’re an international student, you can get a Social Security number with the appropriate paperwork. Make it a priority to get a number. In all cases, be sure to go to your local office with all the required paperwork.
Apply for a Credit Card
Next, apply for a credit card. One should do nicely. It gives you a credit history but is manageable because there’s only one. Applying for a lot of credit cards at once will hurt your credit score.
Credit cards vary in interest rates. Be sure to review offers carefully. You want the lowest interest rate possible, as payments are less if rates are lower. Look for one with no annual fee. Many credit cards marketed to students offer cash back for travel, groceries and so on. As long as you’re getting one, these offers can be beneficial, but be sure to read the fine print.
Decide What to Charge
Don’t just begin randomly using your card. You don’t want to rack up a lot of debt — that’s as injurious to your financial life as bad credit, and can easily lead to it. Never use a credit card for daily living essentials, like rent or food. You need to be able to pay those out of your monthly income. It’s a financial danger sign if you can’t. Choose something you will be able to pay off easily, as quick and on-time payment will maximize your credit history. Holiday gifts, travel or clothes are all possibilities.
Pay the Bill on Time
Since you’re doing this in part to build a good credit score, be sure to pay the bill right away. Missed payments, even one, will affect your credit score negatively. It’s to your financial advantage to pay the entire bill since it will mean no or minimal interest rate charges. If you need several months, though, that can also be helpful to your credit score, as long as each bill is on time.
Watch for Identity Theft
Unfortunately, identity theft is real and becoming more common. There is always a possibility that your credit card number could be compromised. Ask your credit card issuer what their policy is about suspicious activity on the account. Some lenders will get in touch with you if, for example, your card is used in Minnesota but you live in South Carolina. One protection method is also looking at your account every week. That way, if you see suspicious activity, you can report it to the lender and other authorities.
Check Your Credit Score Annually
It’s important to keep on top of your credit score. First, you want to know what it is so you know what landlords and other recipients will see. Second, all records have some possibility of being wrong. If data is reported on your score that is not yours or is inaccurate, you need to know so you can take steps to fix it.
It’s important to have a credit history and a good credit score as you begin adult life. College is a prudent place to start, so you have the record in place when you rent your first apartment and get your first job and car. These steps will help you get a credit record sanely and responsibly.