For many students, the beginning of your college career is also the beginning of your transition to adulthood. You will likely have more freedom — and responsibility — than you have ever had before. One of the most important aspects to being an adult is planning ahead and living with intention, especially when it comes to your finances and building credit. As a credit coach, I’ve assembled the top five tips to help you start to build healthy credit and begin your life as a responsible adult.
1. Get a Credit Card
Now that you are breaking out on your own, you may want to consider getting your own credit card. It’s likely to be a low-limit card, but that’s OK. Going heavily into credit card debt is too easy and certainly not a good thing, especially early on in your financial life. Used responsibly, a credit card can help you build good credit – you can do so by regularly using the card for purchases you’ve already budgeted for and paying the bill in full each month. One way to make it easy is use the credit card to pay a regular bill like your cellphone, then pay the credit card bill in full. You can create an automatic payment so that your payments are never late.
2. Put Bills in Your Name
Now that you are moving out of your parents’ home to attend college, it’s a great chance to take responsibility for your bills and switch them into your name. And if it’s a credit-based account, this can also help build your credit.
3. Pay Bills On Time
Once you have bills in your name, it’s important to do whatever you have to do to make sure they are paid on time. Use automatic payments, email alerts, reminder functions on your cellphone, or any other necessary technology aids to help you remember to pay your bills on time. Late payments can negatively affect your credit for years to come, so always pay on time.
4. Consider Different Types of Credit
Having a mix of credit types (mortgage, credit cards, auto loan, student loans, personal loans) can benefit your credit score if they’re managed responsibly — and as a college student you may not even have to try very hard at this one. If you have a credit card and student loans, you’re off to a good start. It’s good to have a few different types of accounts and a good payment history.
5. Handle Credit Responsibly
Having credit as a young person can test your will. However, learning to control your financial impulses sooner rather than later can help you in the long run, so start practicing now. It’s tempting to buy a fancy dinner or new pair of shoes using your credit card if they’re not in your budget. Just remember the bill always comes due, so avoid overcharging or overburdening yourself with debt. Using too much of your available credit (more than 25%) can negatively impact your credit score and burden you with added stress that you certainly don’t need as you enjoy your college years.
So how will you know if your new habits are making a good impact on your credit? The best way to find out is by regularly checking your credit reports and credit scores. You can get your credit reports for free every year from the three major credit reporting agencies at AnnualCreditReport.com. Check your reports to make sure they’re accurate. You can also get your credit scores for free from many sources, including Credit.com, where you get two of your scores updated every month. Following the same score over time can give you a general idea of your credit health. If you see any big, unexpected changes to your score is a sign for you to check your credit reports for any issues.
Start making a habit of these steps now and you will be well on your way to building a good credit score, which can help you immensely in the future when you are ready to consider other important steps to adulthood — like buying your first home.
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Jeanne Kelly is a nationally recognized authority on credit, the founder of The Kelly Group and the author of The 90-Day Credit Challenge. She has appeared on The Today Show, and blogs for Huffington Post & Poughkeepsie Journal. Visit her online at www.JeanneKelly.net. More by Jeanne Kelly