Building good credit is important to planning
and managing your finances because a positive
credit history will enable you to expand your
buying power. For example, in the near future
you may wish to borrow money to make a fairly
expensive purchase in life such as a car or
computer system. Many apartment owners also
check applicants' credit reports before
agreeing to rent apartments. If owning a home
is a future goal, you'll need a good credit
history to obtain a mortgage.
The following pointers can help you get
started while you're still a student.
First, educate yourself about credit and
credit management.
Surveys of high school students conducted by
such groups as the Jump$tart
Coalition for Financial Literacy and the National
Consumers League show that many teens have
little understanding of personal finance and
financial tools such as credit. For example,
in the NCL's 2002 survey, 52% of teens 14-18
wrongly indicated that a credit card was an
"informal agreement to pay money
owed." Not knowing that a credit card is
a legally binding contract that requires the
borrower to pay the money owed can lead to big
problems. So first review the basics about credit
and credit management.
Steps for building credit as a high school
or college student.
Streetwise offers steps that anyone can use to
build credit in "How
do I build good credit if I don't have credit
yet?". In keeping with these
tips, experts recommend the following steps as
appropriate to young adults in high school or
college who are just starting out.
Open a checking account. Although
checking accounts aren't "credit,"
checking and savings account history can be
included in your credit report. Keep the
checking account active and manage the money
carefully-don't bounce checks. If you are new
to managing a checking account, think twice
about using a debit card with it because it's
harder to keep track of what you've spent. If
you do use a debit card, save receipts and
write each debit in your check register
immediately.
Apply for and receive a credit card. To
build credit you will need to hold the credit
card in your own name, not in a parent's name,
although a parent or other adult may need to
be cosigner. Where can a teen find a card? Are
you a member of the credit union? Check NFCU.
You may also find that
applying for a store credit card at a
department or specialty store where you shop
regularly is an option. Be sure that the
company reports the status of its accounts to
credit reporting agencies. A secured credit
card is another option. Secured credit cards
require that you place a certain amount in
savings. They typically have smaller credit
lines and higher interest rates. A secured
loan is guaranteed by the money you have in a
savings account. It offers a lower interest
rate. After you receive the credit card, make
only small purchases, and pay the bill in full
when it arrives and well before the due date.
Doing this regularly over time helps build
your credit history as a prompt payer. Never
be late and never skip payments. Don't fall
into the seductive traps of credit
cards-overspending and/or making minimum
payments. By paying off the balance in full
each month, you probably won't incur a finance
charge "interest charged on an
outstanding balance," but it's still
important to keep rate in mind when shopping
for a credit card..
Secure a small loan for a planned purchase.
If you are working or have been saving toward
a middle-sized purchase such as a computer
system, you may wish to consider taking out a
small loan to pay for it. Again shop your
rates, the retailer may offer a loan plan but
interest rates are typically very high.
Explore what your credit union may offer. A
loan cosigned by a parent, a loan secured by a
savings account, or a Kwik Cash line-of-credit
are loans for which you may be eligible. To
build good credit, make all loan payments on
time; don't be even a day late.
What about an auto loan? A number of
dealerships offer special programs for
first-time buyers. The objective of the
dealers and manufacturers is to make young
buyers life-time customers. Eligibility
requirements (including age) vary. But if
you're eligible for a dealer's "first
time buyer" program, you're usually
eligible for a loan from the credit union or
bank. Be sure to compare all financing rates
and terms. |
