Establishing Credit in College

     I remember being a freshman in college and wanting a cellphone. (Yes, you read that right—freshman in college!) My first phone was a prepaid cellular phone, which meant that I paid to put minutes on my phone. Those minutes would go fast! I eventually wanted another phone with better services. But I remember not being able to get one at first because I had no credit history. Credit history is what your credit report shows to give retailers, realtors, and even job administrators the confidence in your ability to make money, keep money, pay money where necessary, and/or pay off debts.  Since I wanted a cellphone with a new service plan, I needed my credit history to show that I made enough money to always pay what I owe. But like so many new students, who just turned 18, who still live at home or just started living on their own, my credit had not been established.
     Credit card companies are going to throw themselves at college students, with the hopes of appealing to their college needs and personal interests. So often, students fall victim to creditors because of immaturity and lack of discipline in regards to personal finances. What initially seems like small, innocent purchases can easily explode into money that cannot be repaid. This can have long-term effects for important purchases later on, such as cars, apartments, houses, and in some cases, it can affect being hired for a position.
Here is my advice for establishing credit:

• Personal banking: Most often, young people will have savings accounts with their parents’ name on the account as guardians. But even as that person goes on to college years later, that banking institution has history with that person, which may prompt them to offer you some type of student account for checking or savings, and even a credit card. A card starting off with a small limit of maybe $500 is a good start and a good test to see if you are able to show discipline and only use for emergencies.
• Parental accounts: If your parents own a credit card, they may put your name on the account as an authorized user. This way, as their credit builds, so will yours. But the maturity goes both ways in this scenario. First, parents should have good spending habits, and be good examples of how to repay bills. If they don’t exhibit proper financial behavior, then being an authorized user on their credit card has no value to you. Second, the parents can list you as an authorized user without giving you access to the card itself. That would be an agreement you and your parents make, which can keep you out of financial trouble.
• Pay your bills: If possible, pay the bill early. If not early, then at least by the due date. Understand that there is a billing cycle, and at the end of the cycle, you will receive a bill. For instance, if the billing cycle is from June 12 – July 12, then your bill for that cycle could be due around July 28th.
• Pay more than the minimum: Let’s say you made a purchase of $50 on your credit card for a textbook. When you saw the bill, the minimum amount due was $15. Now, if you have $50, pay the whole amount. But if you don’t, try to pay $20. Paying more than the minimum not only cuts the debt, it limits how much interest is charged, and establishes great payment history.
• Only use for necessities: My first credit card had a $500 limit, so I used it only for gas in my car so I could travel to work, to school, etc. Since I had a paycheck, I told myself that if I put $10-20 of gas in my car, I can surely repay $10-20, either early or by the due date. When I needed to do car maintenance, I used my car knowing I was getting paid enough to pay it. Emergencies happen – car trouble, supplies for classes, needing to buy food or pay a utility bill. So in those cases, having something to handle those moments can relieve one’s stress. But if spending is out of hand, stress will only increase.
• Understand the credit jargon: I may need to do another post on this entirely, but be sure to know what is meant by interest rate, APR (annual percentage rate), billing cycle. Be mindful of introductory deals that sound great at first, but end at a certain date. If the interest rate is initially 0% for the first 3 months, know that when the 3 month period ends, that rate can be 15-20%.

     
​Start early and take it seriously. You will be able to do and have many things in your life all because your credit looks good.  As always, I hope this post helps you and there will be more to come on this subject. Much love to you! Keep pushing!
-T. A. Acker