Even with scholarships, most college students will need to apply for some loans. How do you build your credit from scratch?
Depending on what high school you went to you may or may not have taken a class in personal finance. Not to worry – whatever questions you may have, Kansas City Credit Union is here to help you make the best possible decisions for you future – we want nothing more than to guide and support you on your path to financial wellbeing and success.
What is Credit?
Credit is essentially your financial reputation. Credit is used to dictate if you get a loan, what kind of loan you will get, and what interest rates you will receive. Banks and financial institutions are not the only ones who check your credit however – utility companies, insurance, even landlords and cell phone companies may examine your credit.
These businesses, financial institutions and lenders use your credit to understand how risky business with you is. Will you make payments? Will you pay on time? These companies and individuals want to know if they should lend you money or if you’re too risky ( aka not going to pay their money back).
What is your Credit Score?
Your credit score is a grade on where your credit stands – it’s the assessment and “grade” of your financial reputation. Credit score is based on your past payment history, your credit “age,” your credit types, total accounts, and credit utilization. Your credit score is basically calculated based on how long you’ve had credit, how much you’ve used that credit, and if you’ve paid it back responsibly and in a timely manner.
How to Build Your Credit Score
As a college student you may be building this credit score from scratch; however, these tips are also helpful to anyone looking to boost their credit score.
- Start Early – Address the “age of credit” by giving your credit score a head start! Three quick ways to do this are to apply for a credit card, to become a co-signer on a credit card, or to become an authorized user on an already existing family credit card. Just be sure to set clear financial boundaries and expectations with your co-signer or whoever owns the card you are being authorized to use. This is a great tip for high school students looking to start building credit – just as long as whoever you’re jump-starting off of has pre-existing good credit, that is.
- Be Consistent – This is perhaps the single most important piece of advice regarding your financial reputation. Make your payments on time, every time. Nothing speaks to credibility and responsibility quite as well as consistency and reliability.
- Start Small – Make small recurring purchases to kick off a good credit. You don’t want to come close to maxing out your card – or worse, purchase too much and not be able to pay it off on time. Small monthly expenses are the way to go – try a gym membership or a streaming site fee. Keep your balance low and your credit utilization down. Lenders may get nervous when you frequently borrow large sums of money; even if you pay it back on time (and it’s absolutely crucial for you to do so), it doesn’t reflect well on your credit stability.
- Be Reasonable. Don’t apply for too many credit cards in hopes of raising your credit score more quickly; once again this is a sign of credit immaturity and instability. Take it slow and be patient – your responsibility will speak for itself.
- Be Smart. There are plenty of ways to boost your credit apart from credit cards; the main key – and we cannot stress this enough – is to make your payments on time. How can you make payments if you don’t have a credit card? Start with your own phone bill. Not only will it teach you to be responsible with your phone and spending, but it will also be another badge on your credit vest.
Have more questions about your credit? Whether you’re a college student wondering how to apply for a credit card or a post-grad individual looking to boost to your current low credit score – Kansas City Credit Union has the answers! Contact us today for more information! We can’t wait to help you on your journey to financial freedom!