Mmm… tasty, tasty credit. We’ve talked about getting your credit report and your credit score for free, but we haven’t really talked about how to establish a good credit history. How do you get a nice credit score?
Super Quick Credit Guide
Your credit score (FICO score) is based on five categories, but we’re just going to focus on the one that matters right now, that being “length of credit history,” which makes up 15% of your score. The longer you’ve had some sort of credit, the better your score. So, start now!
You may have heard about the “credit crunch” and think that this will be hard right now. Well, not really. From what I can see, credit card companies and other loans will always target college students. We’re reasonably educated, we have high potential for future earnings and, if all else fails, most of us have parents to bail us out. We’re a slam dunk as far as credit card companies are concerned, so they’ll be targeting our age group forever and ever.
So, private student loans may not come as easily as they did a few years ago, but there are still going to be a lot of options available for college students looking to establish a credit history.
Speaking of student loans, over 50% of us have them. So, you’re done. By taking out a student loan in your own name, you’ve established a credit history. Congratulations! If you want to do more, keep reading, but really… all you need to do is make on-time payments to your loans when they come due.
But, uh… don’t take out too much, ok?
If you don’t have student loans, or you do, but you want to do more, you can get a student credit card. WAIT! Before you run off with this license to spend, remember that this is for a specific purpose, and that you’ll have to do it right.
A lot of people suggest you get a credit card and charge one thing a month, and then pay the credit card off in full every month. This advice has its heart in the right place, but it’s part of what got me into trouble a few years ago. I did fine for five months, but I was buying things I didn’t really need in the interest of “establishing a credit history.” I used it as my fun money. And then it turned into fun debt, which turned into not fun debt.
Now, I prefer to get a card with a specific purpose in mind. Thankfully, credit card companies make this really easy for you by offering cards with different rewards programs. A few good ones for college students:
- The Amazon.com Visa card: use it just to buy your textbooks for school. Pay it off in full with your textbook money when the bill comes.
- Citibank’s Driver’s Edge card: gives you rewards for purchases relating to your car. Use it for gas and car maintenance, and pay it off in full when the bill comes.
- Discover Student Card: offers 5% cashback in certain categories. Pick a category that you were going to buy stuff in anyway and pay the bill off in full when it comes.
- Citi’s mtvU Visa: designed specifically for college students, this card gives rewards in a ton of student-related categories, including points for getting good grades. Pick a few defined things that you already buy to use the card on, and pay the bill off in full when it comes. [Note: I had some trouble getting this card last year, when I applied. Just so you know.]
By now, you probably noticed how strongly I’m stressing buy things that you would buy anyway with cash, and pay the bill in full when it arrives. Don’t get suckered into using it as “free money,” or paying just the minimum, because that’s how you get hit with interest charges.
Establishing credit can be free if you do it right. In fact, you should get paid for using a credit card, via rewards programs. But if you pay interest, you’re going to wipe out all of those reward dollars… plus some. This goes for annual fees as well – read the fine print, and don’t settle for any card that comes with an annual fee.
If you’re careful, you can establish a good credit history that impresses lenders, employers, and landlords… which can have a profound effect on the rest of your life, financial and otherwise.