Do not wait until you graduate to improve your credit score. Like anything that involves your finances, the earlier you start, the better it will be for you. Whether it is saving for your retirement, paying your debts or improving your credit report, it pays to start working on them as early as you possibly can. It will help strengthen your finances even while you are still in college.
But why the focus on credit scores? Is it really worth the effort to build it up before you graduate?
The answer to that is yes. The reason why will become clearer throughout this article.
According to statistics, more than half of American consumers have a FICO score of more than 700. It would be nice if you get out of college with a credit score that is as high as the average consumer. It will help you get started on your financial position early.
It is smarter for you to start developing the right financial habits as early as you can. If you try to improve your credit score while you are still in college, the important habits that you need will naturally develop. You will learn how to monitor your credit transactions, be more cautious of how you spend, and follow a budget plan to make sure all your credit obligations are met.
Tips to increase your credit score
The thing about credit scores is you really start with a low one. While you are young, you hardly have any credit transactions. Most likely, you also do not know how to manage the little credit that you have been using. All of these would result in a lower than the average credit score. For some students, they hardly have any entry in their credit report. A thin credit history will result in a low credit score. And if you do not know how to use credit cards, that might also pull your credit score down.
Fortunately, there are specific tips that you can easily follow to improve your credit score.
Know your credit score
Before you do anything, you have to know what your current credit score is. The three major credit bureaus are mandated by the government to provide consumers with 1 free copy of their report each year. You can access this through the AnnualCreditReport.com. You can then find one of the free calculators online that you can use to calculate your credit score. It might not be accurate but it will definitely be the nearest to what you currently have.
Once you have this score, you need to check if there are errors. You might have been a victim of identity theft or there might be a wrong entry. If there are, you need to dispute that and ask the credit bureau to change it. This might be the reason why your score is low. If not, then you now know the extent of the improvement that you need to work on.
Be careful when borrowing student loans
According to statistics, Americans owe an astounding $1.3 trillion worth of student loans. This is already more than double the amount a decade ago. While the use of credit is important in improving your credit score, having too much of it will bring it down. The credit utilization measures the credit balance against the limit. If this ratio is high, your score will definitely decrease. This is why you need to be cautious when you borrow student loans. Borrow only what you need and try to live a frugal life or get a part-time job so you can keep your debt low.
Use credit cards but use it wisely
Apparently, a lot of college students own credit cards but they are not really aware of how to use it properly. In fact, 4 out of 10 admitted that their parents and teachers did not give them sufficient advice on proper credit card use. This is probably one of the reasons why some college students rack up a lot of debt while they are still in school. If this card is under your name, you will be in trouble. It will pull your credit score down.
This does not mean you should stop using the credit card. It is still one of the best tools that you can use to pull your credit score up. However, you should use it only when necessary. Not only that, you have to make sure that you can pay the balance in full when the billing comes. This is how you can save yourself from paying the finance charge.
Pay bills on time
This is one of the best ways to steadily improve your credit score. In fact, if you happen to make a mistake and bring down your credit score in the future, this is the best way for you to rebuild it. If your payments are 30-days late, it will automatically bring your score down. And if you let it happen several times, that can also hurt your score. So if you can avoid it, never miss a payment.
Work on bringing your balance down
Finally, college students should pay careful attention to their balance. It was previously mentioned that credit utilization can be a problem for your credit score. If you can lower the balance to limit ratio, that can help bring your score higher. Ideally, you want to have a balance that is 30% of your total limit. This is the safest amount that you can borrow so it will not negatively affect your score. If you want to improve your score quickly, you need to bring your balance to the right level.
Reasons why you need a good credit score
There are many reasons to improve your credit score. Having a good credit reputation will really set you up for a brighter financial future. It will open more financial opportunities for you.
Here are the specific benefits that you will get if you decide to work on your credit score.
Helps you with living arrangements
There are two ways that this can be true. First, it can help you find a great unit to rent. Whether it is a condo unit or an apartment, landlords oftentimes look at the credit score of prospective tenants. This allows them to see your payment behavior. The other way it can help is with your mortgage. Eventually, you will think about buying your own house. This involves a really big home loan that you have to pay for a very long time. If you have a good credit score, you can get this loan with the lowest interest rate. This will help you save on the payments.
Increases the chances of a lower interest rate
We already mentioned how a good credit score can help you get a low-interest rate on a home loan. The reality is, this is true for all types of loans. Whether you will get a car loan, personal loan, or even a credit card – a great credit standing will allow you to get a low rate. This will make your payments easier to handle because it will be lower.
Makes business start-ups easier
If you want to start a business, you want to make sure you improve your credit score first. First of all, it will help you get a business loan to get your company started. It can also help you secure investments – if that is what you need. A good credit score is also something that other businesses look into before they agree to partner with your own. There are so many things that will come to you more easily if you show that you can be responsible with the use credit.
These are only a few of the things that will benefit you if you build up your credit score. Starting while you are still in college is usually a good idea. That way, when you start earning, you are already in a good financial position.