Credit is an important part of your financial history. Whether you are interested in purchasing a car, a home, or even applying for a job, credit can either work for you or against you. Many people know that it is important to have good credit, but they aren’t exactly sure how to start establishing it.
Here is some general information that will be helpful as you strive to build good credit.
There are two ways in which your credit is measured- a credit report and a credit score:
Credit Report: There are 3 credit bureaus (Experian, Equifax, and TransUnion) in existence, which track your information regarding your credit. Institutions such as banks, credit card companies, your student loan servicer, etc., will send information to credit bureaus (not necessarily all of them) regarding your payment history, how much you borrowed, the number of credit accounts you have, and more. All of this information (good and bad), including a lot of your personal information, is on this report. A free annual copy of each report can be obtained at https://www.annualcreditreport.com/cra/index.jsp
Credit Score: The credit bureaus assign you a score ranging from 350-850, with 350 being terrible and 850 being excellent. A free estimation of your credit score can be obtained at https://www.creditkarma.com
Now for a misconception: Many people think that if they get the utilities in their name, having a cell phone contract or similar things helps build your credit. Unfortunately, those things do NOT help you establish credit. The only time that these items will make a difference (in building credit) is if your accounts go into collections; that will severely hurt your score and put a major blemish on your report.
I am not saying that having utilities in your name won’t be of any help to you, because it can. Businesses, property management groups, or banks will often ask for credit references. If you have been a trustworthy customer, you should have a strong list of credit references to offer.
Here are some easy ways to build credit while in college:
1) Getting a credit card and using it to make small regular purchases and paying it off entirely each month. Essentially treating it like a debit card. WARNING: If a credit card is used improperly or impulsively (exceeding your balance or missing payments) you will end up doing the opposite of what you set out to do.
2) Taking out a small loan at a bank. Loans of various sizes are available at banks and you could take out a loan, simply hold on to it, then repay it when it’s due (principle and interest).
Remember that a good credit history takes time to build and the sooner you get started the better.
Peer Financial Counselor II
Powercat Financial Counseling