Finances are an essential part in college students’ lives, while at school and after graduation. But with so many competing priorities, it’s easy for college students to overlook the importance of credit. According to FICO (credit-scoring company) 67% of 18 to 24-year-olds have at least one credit card at their disposal. Few, though, have learned how these accounts work and the best way to handle them. This could easily lead to debt and a poor credit rating. Below is a list of tips on how to begin the credit-building process early on.
Realize The Effects of Opening a New Card
Before opening your own credit card, be sure to understand what it will do to your credit. Each time you apply for credit, a hard inquiry is listed on the credit report(s) that were pulled by the lender. This will ding your credit score a few points temporarily. So you want to limit how many cards you apply for at once. Learn more about the credit cards we offer.
Choose The Right Card
If you don’t have much credit yet or you are working to rebuild your credit, a secured card could help. For a secured card, money is put down as collateral, and the credit line will usually match that sum. These cards are easy to qualify for because lending risk is greatly reduced by the security deposit. At Credit Union of Denver it works like a regular credit card, but your credit limit is determined by the amount of money you deposit, and it will even earn interest! Just deposit money, use your card, pay it back, and build your credit. Learn more about our Secured Card.
Keep Your Spending in Check
The secret to using a credit card effectively is to never spend more than you can afford to pay back when the bill arrives that month. When you charge several expenses onto your credit card that go unpaid because you can’t afford to pay them off, you run a high balance that incurs
interest, and it can use up too much of your credit limit. This will increase your credit utilization rate (a ratio showing how much of your available credit you use) and decrease your credit score because the total amount you owe is the second biggest factor to your credit score.
Pay Your Monthly Bills on Time
Your payment history is the most important factor determining your credit score. To ensure you pay your credit card balances (or other bills like student loans) on time, automate your monthly bills so that the money is withdrawn from your bank, and you never pay late or miss a payment. Try Bill Pay to pay your bills safely, securely, and on time. Available in online and mobile banking.
Student Loans Can Help Establish Credit
While a large part of your credit score relies on how well you manage revolving debt (like a credit card) student loans also play an influential role. Student loans and mortgages are known as installment loans. Be sure to stay current on your student loans and make your payments on time, so that you positively impact your score.
Check your credit report.
It's important to periodically review your credit report to ensure your credit usage is reported accurately. Take a close look all the types of credit listed on the report and the status of each credit card or loan. Information recorded on a credit report directly impacts your credit score. You can review your credit report once at no cost every year from each of the three major credit reporting agencies.
At Credit Union of Denver, you can use Credit Score and More year-round to check your credit score for free without impacting your score! It is a free credit score management tool available within Online Banking and Mobile Banking. View your current credit score, review your entire credit bureau report, dispute your report through TransUnion, and more!
Getting an early start toward building credit can help you achieve your financial goals before and after graduation. As well as help you obtain financial products and lower interest rates in the future. That’s why it’s important to understand what credit is and how your actions can impact it.