Attending college comes with a host of new responsibilities, and your parents have (hopefully) sent you off with the wisdom and encouragement you need to handle those responsibilities on your own. Your studies and your GPA are your top priorities, but you may have other obligations that are important too. Whether you are responsible for paying tuition, holding a part-time job, or fulfilling an internship, these life-learning experiences can help you prepare for your future career.
While you're busy writing term papers and picking up weekend shifts, though, there's something else you should be working on: your credit score. That little number will play a significant role in your financial future, so here's a closer look at why your credit score is so important as a student and how you can build, maintain, and keep your credit score in tip-top shape.
Why Credit Matters
1. Your future job opportunities may depend on it.
Once you graduate, you will be applying for jobs that will kick-start your career, and your goal is to land a job that not only makes you good money but is enjoyable as well. If you're not careful, though, a poor credit score could keep you from getting that dream job.
Many employers run credit checks before they hire a candidate. A good credit score tells an employer that you are an organized and responsible person. You may have all the qualities they are looking for and your skill set may fit every description to land the job, but if your credit score is in bad shape, your opportunity may be given to another candidate with the same skill set and a better credit score.
2. Good credit could help you land your first apartment.
You may decide to live at home with your parents for the first few years after graduating college. This temporary arrangement can help you save up enough money to get yourself out on your own and into your first apartment. But keep an eye on your credit during this period, as it could impact your ability to get an apartment down the line.
Even if you have enough money for the deposit, your future landlord wants to be assured that you will be a responsible tenant that pays the rent on time, so they may check your credit report. If your score is low and your credit report shows that you aren't paying your creditors on time, you may not get approved to rent the apartment.
3. You usually need solid credit to secure the best interest rates on loans.
Want the best interest rates on your future auto loan or mortgage? Then you need good credit. Getting the best interest rates on car loans, home mortgages, or any other type of loan generally requires a great credit score.
Lenders will base your interest rate on multiple factors, but your credit score will often carry a lot of the weight in that determination. If your credit is pristine, you have the upper hand—with a better chance to negotiate in your favor. Shopping around for the best interest rates on loans is easier with an excellent credit history and score.
Once you understand why your credit score is important, you're ready to start building and maintaining it.
How to Start Building Credit
If you are starting from scratch as a college student and don't have any credit history, a secured credit card is the safest and best option. A secured credit card is one of the best ways to build credit because an up-front refundable cash deposit is required to serve as your credit line. The cash deposit also serves as collateral in case you default on payments. In some cases, you might qualify for a credit line that's higher than your deposit, but you can always expect to put some money down for a secured card.
While you never want to default on any credit card and should avoid it at all costs, that deposit does provide a way for you to pay off the card if you come upon unfortunate financial circumstances. However, even though the credit card company may be able to recoup the amount owed with your deposit, your late payments will still be reported to the major credit bureaus and you may still incur interest and late fees.
If you make purchases and pay the balance in full and on time consistently, you will create a positive credit history, and at that point, you will be able to apply for an unsecured credit card. Just keep in mind that if you are under 21 and do not have proof that you are employed, you will need a parent to co-sign your credit card.
How to Keep Your Credit in Good Shape
It may be tempting to treat yourself to something you want when you first receive that credit card, but you should try to steer clear of making purchases that are not necessary. Understanding your wants versus your needs is key to keeping your spending habits in check.
It's important to live within your means and to keep your credit card balances well below your credit limit. It's also crucial to pay your credit card bills on time consistently. Having a budget and cap on your spending each month will also help you maintain positive financial habits and make good decisions before buying. And once you have built credit and established a good credit history, you'll still want to continue these steps to keep your score healthy and robust well into the future.
Credit is a big deal. Whether you're just starting to build credit or have been working to build your score for a while, regularly checking your standing is a great practice—it'll give you insight into your credit habits and alert you to any fraudulent activities that might be hurting your score. You can check your credit report for free at Credit.com.