Building good credit for college students and recent graduates

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Credit is one of the major building blocks of a healthy financial future. Stated most simply, credit is the lending of money with a premium, known as interest, to be repaid over a designated period of time, usually in monthly installments. It is a truism that getting credit helps one to build a credit history because creditworthiness is the measure of one’s consistency in paying back lenders.

Credit on College Campuses

Borrowing against a line of credit has become like a rite of passage in America, and yet another marker of the transition from adolescence into adulthood. It is no surprise then that one usually begins to build credit after high school graduation, usually in the form of credit cards. In fact, discussions regarding college students and credit center mainly on credit cards as they have become a main staple of credit in young adult life.

It is not difficult for college students to begin building credit as credit card companies are more than eager to approve student credit card applications in hopes of students becoming lifetime card holders. Some credit card companies will have ambassadors on college campuses ready to sign up students on the spot, and there are usually numerous credit card applications available in college bookstores. According to College Parents of America, a 2009 study of college students and credit cards found the following:

The best practice for building to credit is to be wise about amount spending, pay off credit card balances as quickly as possible, and stay current with monthly payments. Observance of these points will bring about a good credit score and a healthy credit future.

Factors Used to Calculate a Credit Score

An understanding of how credit scores are calculated provides guidance on how to responsibly use credit. According to My FICO, the following weighted factors are considered in the calculation of credit scores:

The factors underlying credit scores help to demystify the process of building credit for college students. Since student loan repayments are deferred until after graduation, many students may not realize that these loans are helping them to build their credit. As student loans can work out to be a positive from a credit-building perspective, it is important for students to avoid downgrading their credit scores through irresponsible use of credit cards.

TIME Magazine, reporting on credit card literacy on college campuses, found that only 10 percent of students paid their balance in full each month and many were largely in the dark on basic terms of their credit cards, such as the interest rate, late fee, or over-the-limit fees. TIME noted the irony of the findings because it would be expected that students who had the ability to succeed in college-level coursework would also have the ability to manage their finances, but such did not appear to be the case. Further, citing a National Foundation for Credit Counseling survey of adults on the topic of credit, TIME noted an unsettling finding: 56 percent of adults surveyed advised that they wish they could improve their credit score while only 5 percent communicated any interest in understanding their credit score. An understanding of how the credit scoring system works is integral to developing a healthy relationship with credit and an important starting place for college students who are just beginning to build their credit profile.

Why Good Credit Is Important

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Starting and maintaining a strong credit profile is a helpful way to create a wide range of lifestyle options and open doors to future opportunities. According to the credit reporting agency Experian, good credit may not only be desirable but necessary to:

It is clear that credit scores are increasingly becoming an indication of more than just suitability for credit and gaining an even stronger foothold in the marketplace. For this reason, it is particularly important for college students who are at the start of the credit-building process to take precautions to protect their credit scores and use their lines of credit responsibly in order to procure all the benefits and privileges good credit provides.

SimpleTuition is dedicated to providing students with free resources to help them develop a sound financial future, including a strong credit profile. The advice, tips and interactive tools available here can help students to develop solid financial skills applicable not only to college planning, but also to budgeting and credit management. We believe that the earlier students learn to be financially savvy, the greater the likelihood that they will be financially secure and professionally successful in the future.

 

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