I am not a financial advisor, nor have I received a formal education based on establishing credit history in college. I am simply sharing my experiences and information I found through research.
As I get closer to finishing college, my credit score is becoming a bigger concern of mine. For those who don’t know, your credit score is basically a sum of analytics help lenders predict how responsible you are with credit and determine your likelihood to repay debt. It affects several things, including your ability to obtain a home or vehicle and even to get a job. Having a high credit score makes life a little easier, and by ‘easier’ I mean cheaper (like thousands of dollars).
One of the many factors used to determine your credit score is credit history. Creditors want to see that you have a good habit of paying off debt on-time for a good period of time. The trouble is, since credit history is a factor, it can be difficult to obtain credit in the first place without already being established. So, how do you establish credit in the first place?
If you have student loans, then you probably have some sort of credit history. You first want to be aware of where you are. You are entitled to a free credit report from the three credit bureaus (TransUnion, Equifax, and Experian) every 12 months through AnnualCreditReport.com. Credit reports don’t include your score, but there are other ways to pull that. You could use a free service like Credit Sesame or Credit Karma to get score updates. Keep in mind, sites like those do not give you your FICO score (the one that lenders use). Instead, it’s a Vantage score that is still pretty close.
For a free monthly FICO score, check out Discover Scorecard, even if you aren’t a Discover customer. When you check your score using services such as those, you are making “soft” inquiries that don’t affect your score. Applying for loans and credit cards are “hard” inquiries, and they do make a difference in your overall score.
Once you have your score, you can focus on establishing a history to keep it favorable. There are three big ways to establish a credit history: secured credit cards, store cards, and cosigning.
Establishing Credit History in College
Secured Credit Cards
A secured credit card is just like a regular credit card, but it requires a security deposit. The deposit (which usually starts around $200) acts as collateral. If you end up being unable to keep up with payments, the lender keeps the deposit. Typically, the amount of the deposit is the same as your credit line. Secured credit card issuers also report to the credit bureaus, so you actually establish and build credit. Once you make payments and exhibit good credit behavior, you may be able to upgrade to a regular, or unsecured, credit card and/or receive your deposit. However, some cards require that you close the card in order to receive your deposit, which could harm your score. Do your research to figure which card makes the most sense for you long-term.
Store Credit Cards
Have you ever been in your favorite store when the cashier asked if you’d like to apply for a store credit card? They probably promised a percentage off your purchase and an attractive reward offer that at least made you strongly consider it. Because people often get approved for store credit cards, it can be a good option for someone to establish credit history. However, ensure that you can pay off the balance in full because store credit cards have hefty interest rates.
The last option I’ll talk about is co-signing. When someone cosigns a line of credit for you, their credit information is taken into account in order to help you achieve a line of credit. With that comes the threat of harming two scores if you miss payments or become delinquent. A cosigner puts their own score on the line, so be sure that you can keep up payments on time and avoid accumulating a great deal of debt. If you do look for a cosigner, consider worse case scenarios and choose someone with whom you share a relationship that could withstand that sort of stress. Be open with them about struggles to make payments because it’s their life as well.
In other words…
Hopefully, you read something that will help you in today’s post! The next topic on credit will be about how to improve your score. Keep in mind, that these are not the only ways to establish a credit history. They are just ways I have used. With whatever method you choose, it is imperative that you do not take on too much and that you can pay what you borrow on time. Missed payments and delinquent accounts weigh heavily on your score, and it is difficult to build. Typically, a good practice is not charging anything that you couldn’t pay alone with cash. If you can’t afford to buy a new Gucci Marmont purse with the money in your bank account, you can’t afford to do it on credit either.
Do you have any advice regarding the methods listed above, or do you have your own methods? Let me know in the comment section! For any other questions, comment below or shoot me a message. Also, this will not be the only post on credit!