How to Build Excellent Credit
Building an excellent credit score is important at any life stage. But college is a special time. You’re at the foothold of earning a degree and building a foundation of credentials that will last your entire career. And like many other students, college may very well be your first taste of true independence, including financial independence.
The latter is important because many students have no choice but to help cover college expenses like tuition, books, lab fees, lodging, and meals by using debt. Debt can take the form of student loans, credit cards, vehicle loans, mortgages, and property leases. Regardless of its form, all debt will impact your credit score. And much like your college credentials, your credit score is also something that will follow you for the rest of your life. And because college is many peoples’ first foray into debt and impacting their credit score, it’s important to understand how to use this time to establish great credit — and more importantly, don’t wreck your credit.
Building excellent credit won’t happen overnight. According to CreditKarma.com, the average credit score of an adult aged 18 to 24 (which is traditional college age) is 630 points. Any credit score between 600 and 750 is considered to be good credit, and any credit score above 750 is considered to be excellent credit. If you’re in college and worried about repaying student loans and other debts after you finish, you aren’t alone.
3 Easy Ways To Build Excellent Credit Score
While studying for a two-year, four-year, or graduate degree, here are three things you can do to build an excellent credit score:
1. Apply for a secured credit card
Any financial institution or credit card issuer can help you build your credit score through this type of program. Typically, you will place a deposit, perhaps as low as $200, into an account. Then, the credit card issuer will provide you with a credit line that allows you to charge up to the amount of your deposit. You can still incur fees, such as an annual fee and interest based on the amount borrowed. However, the deposit of $200 serves as collateral for the credit card balance. The credit card issuer reduces its risk by holding the deposit to secure the card.
2. Make all loan and credit card payments early
If your credit card or loan payment is due on the 10th of each month — setup an automatic payment for the 3rd. Paying a week in advance leaves no chance for a late payment. And late payments are like kryptonite to your credit score. Anything posted after the lender’s due date will count as late in their system and send your credit score spiraling downward. Remember, your credit score is calculated in part based on the timeliness of monthly payments. A single late payment can have inordinate consequences.
3. Obtain an auto loan with a co-signer
If your parent or a relative is willing to co-sign a loan with you, you can start to build credit by taking out an auto loan. As you repay this debt over time, your credit score will increase. Lenders also consider whether your total indebtedness is decreasing and whether you’re reducing the balance on each loan and credit card each month.
Why Your Credit Score Matters
While in college it might not seem important to raise your credit score. However, lenders want to see how you perform over the long-term when it comes to repaying debt. And this includes debt incurred during college. If you establish an excellent credit score while in college, then your total cost of borrowing as an adult will be less. And this is priceless (figuratively, not literally).
Mortgages, credit cards, auto loans, and any other form of borrowing is simply easier and cheaper with an excellent credit score. So remember, college is where you lay the foundation for a bright and productive future — and this includes establishing your credit score!