Establishing Credit as a College Student

                                                                                         

Some college students shy away from credit altogether in effort to be financially responsible. The prospect of becoming trapped under the weight of unmanageable credit card debt can be quite daunting, and many students are not confident in their ability to manage debt responsibly. Though refraining from opening a credit account in effort to remain debt free can seem like a sound financial choice, a lack of credit can be detrimental in the future as having a solid credit history becomes increasingly important.

Contrary to commonly held perceptions, having a credit card does not necessarily equate to spending beyond one’s means and falling prey to mounds of debt. Managed responsibly, a credit card can be utilized as an instrument to build an excellent credit score that will expand the financial options available to a student in the future. Without credit history and an acceptable credit score, it may be difficult to impossible to get a car loan, obtain cellular phone services, and buy or even rent a home.

Your credit score is a numerical rating of your repayment history that lenders use to ascertain the risk of lending to you. Establishing a good credit score will allow you not only to get approved for a student loan, vehicle financing and other types of loans you may pursue in the future, but will help you qualify for better interest rates, equating to true dollar savings in the long run.

Like it or not, your credit score remains with you, so it is best to be conscientious and make effort to boost it from the beginning. Your FICO credit score is calculated based on your track record of making timely payments on accounts (35%), the ratio of account balances to available credit (30%), the length of your credit history (15%), new accounts and applications (10%) and the mix of the types of credit you use (10%). As you can see, a majority of your credit score is calculated based on your history of making payments on accounts on time. Staying up to date on all accounts, including credit card bills, loans, utility accounts and cell phone services, will contribute positively to your credit score over time. Even during months when you are short on funds, making a partial payment on time is better than making no payment at all before the due date. Almost as important as having a solid payment history is managing the levels of your total debt vs. the total amount of credit you have available. Some common sense is in order here—an outstanding credit card balance of $1,900 is worse on a card with a $2,000 limit than it is on a card with a $10,000 credit limit.

Waiting until you are ready to buy a house or a vehicle a few years from now to start paying attention to your credit score will likely result in disappointment. Building good credit involves responsibly handling all of your financial responsibilities and debt consistently over time. Managed wisely, a credit card can be a valuable tool for building credit or improving your credit score. Even with a good credit score, you can be denied loans because your credit history is not lengthy enough. Practicing financial responsibility with all accounts will provide a solid foundation on which you can build your credit score over time.

About the author:
About the Author: Edmund Rogers, a graduate student in English, is the editor for iStudentLoan.com, a student loan and student loan consolidation provider which also supplies a free online resource for learning about and applying for a student loan. For more information, please visit http://www.iStudentLoan.com

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