About a year ago, a friend of mine wanted to obtain a loan from a bank. After going through his application, the bank promised to get back to him. A few days later, I found out that the bank denied his application. It was such a big disappointment as he needed the money badly.
I was angry at the bank for being so inconsiderate, but when I saw his FICO score, my anger died down immediately. No reasonable bank will give him a loan with such a poor FICO score!
In this article, you will find answers to the following:
- Why college students need to have a good credit rating score.
- What is a FICO score, and how does it affect you?
- What should a college student’s credit score be like?
- What is the best way for a college student to build credit?
- What are the dos and don’ts of a credit card for students?
Why Do College Students Need To Have A Good Credit Score?
As a college student, having a good credit rating score is almost as important as having good grades. To get access to loans, you need to have a good credit score. Lenders need to have the assurance that you’ll be able to pay back the loan at the stipulated time. Most lenders would usually look to your FICO score to give them an idea of your credit history and how trustworthy you are. If you have a poor score, you won’t be given the loan. You can almost bet your life on it.
You should also improve your credit score as a student because it would help you crash your interest rates on your borrowings, which would help you save more money.
What Is A FICO Score And How Does It Affect You?
A FICO score shows lenders how legitimate you are as a borrower. “FICO” stands for “Fair Isaac Corporation.” It is a data analytics firm that was established in 1989. It uses information about your credit history, credit utilization, and payment history to determine your FICO score.
As a student, if you plan on living the American dream, owning your own home, snagging a great ride, getting a good job, or even owning your own business then, you would want to have a great FICO. Your future landlord, auto loan creditor, future employer, and even the bank is interested in your creditworthiness by FICO.
Now, whether you are a college student or simply an adult, you need to be creditworthy to access funds for most things. And if that is the case, as a rule of thumb, a credit score of 750 and above sounds good. Stay within that range.
So, What Is The Best Way For A College Student To Build Credit?
First things first, own a credit card. The single most important reason to apply for a credit card is to build a positive credit history. So, grow up and get one.
However, if you don’t want to or can’t open your credit card account, then another smart thing to do is to get your parents to make you an authorized user of their credit cards. That way, you can piggyback off your parent’s positive credit history.
Other ways of building credit as a student include:
- Opening a secured credit card: This is a smart way of building credit, especially for students with little or no credit history. It’s quite similar to your debit card. Your credit limit is determined by the amount of cash you deposit.
As credit bureaus are aware of every transaction made with a secured credit card, you can easily build your credit score by making small purchases with this credit card.
- Making payments on your student loan: If you have student loans, start making payments on them while you are still in school. This will improve your credit score as it shows that you can repay your debts on time. Even if it means cutting down on your monthly expenses, you will find out later that the result is well worth the sacrifice.
- Get someone to co-sign for your credit card: You may find it difficult to obtain a credit card as a student, especially if you’re below 21 years old. Your best bet is to look for someone who is legally qualified for a credit card to co-sign for your credit card.
However, you should ensure that you don’t miss payments as you would be jeopardizing the credit of your consigner if you do. Also, avoid the temptation of overspending simply because you don’t have to pay immediately; always spend within your limits.
What Are The Dos And Don’ts Of Using Credit Card As A College Student?
- Do your homework before choosing a credit card company. Choose the card that’s right and best for you. Credit card offers are endless. Just because you received an offer in the mail doesn’t mean you should take the dive. When you receive a credit card offer that piques your interest, do the due diligence. Don’t let freebies tempt you. Do you know how a pretty woman chooses her man from her roaster of chasers? That’s right. Compare and contrast various credit card company offers. Know what’s a great fit and go for it!
- Do marry your card features. Different cards like different phones do different things. Understand these differences, and they can potentially break or build your overall wallet.
- Do keep an eye on your purchases. Spend no more money than you earn, period! Differentiate your needs from your wants and evaluate your purchases.
- Do pay up promptly. That is how extra fees/charges are avoided. You should also try and get answers to questions on interest rates or annual fees.
- Do submit to your credit limit. When you are simply under the confines and boundaries of your credit limit, you’d be kept safe from the temptations of overspending with the consequent interests and charges
- Do keep an eye on your credit score because your ability to buy a nice car, own a decent home, qualify for a loan, and sometimes a befitting job hinge on that.
- Do pay more than the minimum payment when clearing your debts. Paying off your debts faster minimizes interest charges.
- Do use credit card reward programs to your advantage. Once you get acquainted with using your credit card right, strategically using rewards can help you save money.
- Don’t use reward credit cards when you can’t pay off the balance quickly.
- Don’t do free money. Avoid cash advances because there’s no free lunch anywhere.
- Don’t use multiple credit cards. Every new credit card application makes your credit score to drop. It’s as simple as that
- Don’t share your credit card.
To have access to most of the important things in life, you need a good credit score. Aside from being a factor that determines your access to loans, it can also influence the kind of jobs you get, the house you live in, among other things. The above-listed points will guide you in building a good credit score as a student.