Establishing Good Credit in College

After you get that first card, how can you manage your FICO score?

Good credit may open doors. It is vital to securing a loan or buying a home. When you establish and maintain good credit in college, you create a financial profile for yourself that can influence lenders, landlords, and potential employers.

Unfortunately, some college students do not have good credit. In fact, Credit Karma says that the average 18- to 24-year-old has a credit score of 630. A FICO score of 730 or higher is considered good.[1]

What are the steps toward a good credit score? To start, you need to utilize credit. About 15% of your credit score is built on the length of your credit history, so the sooner you purchase goods and services with a credit card and pay off that debt, the sooner you create a record of credit use.[1]

Aim to reduce the balance to $0 every month. Does this sound like a challenge? It may not be if you just use a credit card to purchase everyday things. When you start splurging with a credit card, paying off the balance in full can become a problem.[1]

Pay your credit card bill on time. Roughly 35% of your credit history develops from your pattern of payments: how on time they are, how late they are. One approach to consider is scheduling automated payments from your bank account, setting up reminders, or paying the bill as soon as it arrives.[1]

Refrain from applying for multiple credit cards at once. About 10% of your credit score reflects your history of credit inquiries, so if you suddenly apply for more cards, you could hurt your score.1Another potentially bad move is jumping from card issuer to card issuer—that is, getting a card, then closing that credit card account and opening a new one after a few months because you find another credit card with better perks. In doing this, you end up giving yourself a shorter credit history per credit card account.[1]

What if you have problems getting a traditional card? If you have no income, you might run into this issue, or there might be other reasons that make it hard for you to qualify for a credit card. Consider going to the bank or credit union where you have a savings account and applying for a secured credit card.With these types of cards, you transfer some money into an account linked to the use of the card, and that amount represents your credit card limit. You can also ask to become an authorized user on a credit card held by one or both of your parents.[1]

You can potentially help your credit score in other ways. Consistent bill paying is a plus for your credit history. If you become an authorized user on a parent’s credit card and they use credit responsibility, just being linked to that account history could help your credit rating.

If you are living off campus, you might end up co-signing a lease, so make certain you understand you and your roommates’ financial obligations. Financially negligent ones could hurt your credit rating if, for example, you are sharing utilities costs. With financially trustworthy roommates, you may avoid that kind of credit score damage. Lastly, if you move while in college, be vigilant about having your bills forwarded to you, to avoid missing payments.[1]

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations
1 - thesimpledollar.com/how-to-build-good-credit-in-college [10/22/19]

Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.