Mark Greene
College and university students focus on building an academic foundation that will support their careers. Yet, they should also be aware of other ways to invest in their future, namely, by building credit. A good credit score will help them obtain loans or lines of credit, receive higher credit card limits, secure mortgages, lease apartments, and even land dream jobs.
Often, students start with zero to minimal credit, making applying for traditional credit cards or loans a little more complicated. Fortunately, student credit cards are available, designed precisely for students in this situation. With this type of card, gaining credit can be practical and manageable. Find out how to build your credit score with a student credit card below!
1. Open A Student Credit Card
A credit card is one of the best ways to start building credit, as it allows you to borrow a limited amount of money and pay it back monthly. The best student credit cards will have a low-interest rate, zero annual fees, and benefits such as cashback, rewards, or welcome bonuses. Additionally, it is essential to select cards with no hidden costs and always read the fine print for extra details.
2. Use Partial Credit
You may be tempted to spend up to your credit limit, but it can be risky. When you receive your monthly credit card statement, you may not have enough to pay back your balance in full; as a result, you will gain interest on the amount. If you continue to carry a balance, you can increase your debt-to-income ratio, jeopardizing your credit.
It is best to keep your utilization low, approximately 30% of your total credit limit. It will make it easier for you to keep up with payments. It will also show your credit card issuer they can trust you to borrow money and make repayments.
3. Pay On Time
Most modern student credit cards will allow you to monitor your balance online, making it easy to keep track of your spending and balance owing. However, even if this is not the case, you will receive a monthly statement detailing your transactions, total balance, minimum payment, and due date. It is important to make all payments on time and consistently to create a good credit history and score.
Your minimum payment is the smallest payment you can make to your credit card issuer without receiving a penalty. However, keep in mind you will still gain interest on your total balance minus the minimum payment. It is best to pay off your utilization in full to avoid these charges.
4. Make Purchases Regularly
Some students may avoid using their credit cards altogether to play it safe. However, if your card remains inactive for a certain period of time, your credit card issuer may cancel your account. In turn, your credit score will decrease dramatically due to low credit/age length.
Additionally, without utilization and timely payments, you may not be eligible for credit limit increases which could help you build your credit score significantly. Rather than take these risks, use your credit card at least a few times a month.
5. Increase Your Credit Limit
Credit card issuers may reward you for using and paying your credit card every few months or years. They may offer you a credit limit increase, which not only boosts your spending flexibility; it also improves your credit utilization ratios.
For example, you may spend $300 a month on a $1000 limit (30%); yet with a $5000 limit, you are looking at $1500 with the same percentage. Alternatively, keep spending only $300 a month and lower your utilization.
6. Check Your Credit Score
Now that you are building credit, viewing your credit report regularly is a good idea. It will allow you to keep track of your score, analyze your consumer behavior as it relates to your credit, and resolve any errors.
Many students need to learn how to access their credit report. There are three prominent consumer reporting companies in the United States: Equifax, Experian, and TransUnion. You can either receive credit reports directly through their services or utilize reputable affiliated resources.
The Bottom Line: Manage Your Student Credit Card Responsibly
A student credit card can be one of the most powerful tools for improving your credit history and score. However, it is important to manage your credit card well in order to keep it working for you and your future. Employ the tips above, and you will be on your way to an excellent credit score in no time.
