College Credit 101
After graduation, finances become your sole responsibility
But it’s not too late to become a (new) credit-savvy consumer. Here’s your crash course.
Credit can be a confusing and uncertain topic for any consumer, let alone the individual who is just starting out and wants to leverage credit without negatively impacting his or her financial future. But why is it important for students to know about credit security in the first place? Two reasons. In the immediate: your credit score. It’s tied to your financial foundation — past and present … and future. In the long term: Knowing more about credit now will save you money (and headaches) in the future.
“When I was in college, credit was the last thing I thought about because it just didn’t seem like it mattered. But it definitely does matter,” says Kristin Wong, a personal finance writer who has written on the topic for NBC News and Creditcards.com. “Your credit score is based on years of history, so the sooner you start thinking about it, the better.”
1. Start building a credit history immediately
Your credit score, and thus your credit history, will be one of the most important numbers in your financial life. “Start by applying for a credit card designed for first-time borrowers, since it will have lower credit standards, and use it responsibly,” says Jim Wang a personal finance expert and founder of WalletHacks.com. But be advised that some may charge fees.
2. Avoid credit card debt at all costs
Don’t carry a balance, it won't help your score. Also, use your credit card only for important purchases. “Avoid the temptation to rack up high-interest credit card debt. That debt can haunt you for years,” says Wang. But if you must carry a balance, make sure the total stays under the 30 percent limit.
3. Practice responsible credit use
Put systems like bill pay and automatic draft in place so you're always paying on time, pay more than the minimum amount and never miss a payment. “If you are able to do this for your entire college career, you will graduate with a sterling credit score,” Wang says. “This will make it easier for you to do anything associated with credit, whether it's buying a new car, renting an apartment or getting a cell phone after your graduate.”
4. Know what “credit utilization” means
This makes up 30 percent of your FICO score, and it’s basically the amount of credit you have available to you versus the amount you’re actually using. “Ideally, you want to have a lot of credit available while using as little of it as possible,” Wong says. In other words, you want low credit utilization. Most experts recommend keeping your utilization under 30 percent. For example, if your limit is $1,000, never carry a balance greater than $300. Learn more about credit utilization at myfico.com.
5. Check your credit report
When you see your report in front of you, you get a really clear, tangible idea of what the word “credit” actually means and what your credit has in store for you. Your report outlines all of the credit cards and loans you’ve taken out, as well as accounts that are in good standing and whether or not you have any potential negative items. “Plus, checking your report every year is important because it helps you stay on top of fraud or incorrect information,” says Wang.