A Few Notes

Before you get started, there’s one thing you need to drill into your head: A credit card is NOT FREE MONEY!  You still have to pay for every purchase you make—just not right now.  Once the end of the month rolls along, you’ll get your statement, and you’re expected to pay in full.  If you start the habit of doing so, you’ll be less likely to live beyond your means or get a nasty surprise when you open your bill and remember that you bought pizza for your entire sorority with your credit card that one night and no one chipped in.  If you start off only making minimum payments, your credit card debt could soon rival your student loan debt.

That said, there are a couple of cards directed toward college students that can help you along.  You’ll need your credit score for a lot in the future, including securing a job and applying for your first home.  Time is your best friend in establishing a high score, so you want to get started early and maintain good habits from the start.

CitiForward Card for College Students

The CitiForward Card for College Students is recommended because it rewards you for good behavior.    If you stay under your credit limit and pay your bill on time for three consecutive billing cycles, your APR could be lowered by up to 2%.  That could mean a lot to you down the road if an emergency arises or your credit somehow gets out of hand.  You’ll start off with 0% APR for the first six months (but check the fine print to see what could jumpstart the APR ahead of time), and you’ll get 5000 bonus reward points for choosing paperless statements within your first three months.

Citi mtvU Platinum Select Visa for College Students

The Citi mtvU Platinum Select Visa for College Students is my personal choice.  Here, you also get 0% APR for the first six months, and there’s no annual fee.  You get 25 Thank You rewards points for each month that you pay on time and stay under your limit, and you get up to 2000 Thank You points twice a year for having a good GPA.  You’ll get 250 points for a GPA of 2.5-2.99, 500 points for 3.0-3.49, 750 points for 3.5-3.99, and 2000 points for a 4.0.  Sounds like great incentive to be studying rather than spending!  You’ll get closer to rewards for free.

AccountNow Prepaid Visa

If spending too much would be a temptation for you, consider a prepaid card, like AccountNow Prepaid Visa.  There is a $9.95 monthly fee, but you have a $10,000 balance limit (meaning you can prepay up to that amount), and since it’s prepaid, you can’t go over your limit or get stuck paying finance charges.  You also get free bill pay and free Credit Builder—while it’s not technically a credit card, your payment history will be reported and will affect your credit score (hopefully boosting it).

Your best bet is to save your credit card for emergencies only, but it happens to all of us—that dress is just too cute or you have no cash but your friend flew in to hang out for the weekend.  The key is to choose the right card and be responsible about your spending.  Use your credit card as a means to build credit itself, and try not to spend more than you can pay off when your bill arrives.

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In order to qualify for unsecured credit, you must already have a high credit score, and the only way to do that is to be responsible with your finances.  A positive credit history will show that you have not made any late payments, defaulted on any loans, filed for bankruptcy, etc, and that you’ve had open accounts for quite some time.  The longer your positive history, the higher your score is likely to be.  When you’ve proven that you are a dependable borrower, lenders are more willing to take the risk of allowing you an unsecured line of credit, which also comes with lower interest rates.

With a secured line of credit, you need to provide security for the lender, and this is generally in the form of opening a savings account that is tied to the credit line.  The credit limit is then determined by the amount that you deposit.  How is this different from a debit card?  You can establish and/or rebuild your credit score.  If your score is low for any reason, you may be more likely to qualify for secured credit.  The lender is assured a return on their investment by insisting on the savings account that essentially pre-pays for your purchases, as well as charging you an annual fee and a high interest rate.

To make sure you can qualify for an unsecured line of credit in the future, you can use a secured line of credit now as a way to build your score.  Secured credit is obviously less desirable due to the restrictions and fees, but it’s easier to qualify for when your score is low.  If you manage it well, you can use it to your advantage and get out of your rut and back on track.

The best thing you can do is make all your payments on time.  If you can pay your balances in full, that’s even better, but at minimum, be on time regardless of how much you can afford right now.  When you’ve just opened your first line of credit, your score may be high because you don’t have any negative history.  But you also don’t have any positive history, so smaller mistakes like late payments can cause your score to drop rather quickly, and you want to be careful not to start heading down the negative path right out of the gate.

Keep your balances low.  You might be pretty excited if you’ve qualified for a high credit limit, but remember, it’s not free money.  You’ll be expected to pay back every penny at the end of the month, and if you don’t, you’ll be slapped with interest payments.  Rack up enough of those and your debt could rise almost exponentially.  If possible, only spend what you know you can pay back when your bill is due.  If that’s not an option, make sure you’re not maxing out your card every month.  Your highest balance gets reported to the credit bureaus, whether you pay it in full right away or not.  If you’re constantly reaching your limit, you appear risky, and your credit score can suffer.

Your score will be used to determine what rates you’ll have to pay for numerous purchases, including cars and homes.  The higher your score, the more likely you are to be approved, and the better your rates will be.  So be sure to consider the future when you’re starting out.  If you aren’t responsible with your credit, you’ll be likely to continue bad habits into the future, and you’ll have to spend extra time turning your history around to raise your score before you bother applying for large purchases.

Above all, be patient.  Time is a big factor in building history.  The longer your positive history is, the better your score, so don’t get discouraged if you’re not seeing immediate results on your credit report.  Negative history is easier to create than positive, so if you continue with good habits from the start, you will notice the payoff when you really need it down the road.

First, about the credit score. There are probably hundreds of companies that provide some sort of credit rating. They all try to come up with some sort of formula that provides lenders and creditors with a number that shows how responsibly of a consumer you are. These companies look at your credit history and provide a rating, and that service is sold to banks, auto dealers, landlords, employers, etc.

But realistically there is only one credit score, known as the FICO Score. This is the number that is provided by the Fair Issac Corp, which is used by 75% of leading lenders. In other words, the FICO Score is the only one you really care about. This is the industry standard.

Now for the credit reporting agencies… they will sell you your credit score for a fee. There are many services that provide your credit score online, but you want to be sure what you are receiving is actually your FICO Score, since it is the one that the people who are doing a background check will also request.

If you’re wondering how the 3 credit reporting agencies differ, here is how they work…

There are 3 credit reporting bureaus: Equifax, Trans Union, and Experian. These agencies have the task of managing billions of transactions for millions of Americans. They try to accurately provide a report that shows your history of using credit over the past 7-10 years. If you opened a credit card 5 years ago, it should be on that report. If you were late on your mortgage or rent, it may show up on that report. If your car was repossessed, chances are it is on your file.

What determines the information that goes on that report is up to the creditors/lenders. They must report the information to the agencies, but they are under no obligation to do so. In other words, if you are late on a payment, they can choose whether or not to report that information. Furthermore, they can choose to submit that application to all 3 reporting agencies, or just one of them if they want.

What they are obligated to do, by law, is provide accurate and factual information.

That doesn’t however, mean that this always happens. Sometimes human error is made and the wrong information is reported or the bureau makes a mistake with listing this information on your report. As a result, it is quite common to have information on your report that doesn’t belong there, and it can hurt your score.

That’s why the best thing you can do it regularly review your credit report and score to make sure it is accurate.

Obtain Your Credit Report

How to Establish Credit

1. Find Your Cu rent Credit Rating: It is possible to have no credit history, but there’s a good chance you have some information on your credit report even if you have never owned a credit card. This file includes previous addresses, employment history, a list of companies and people that have tried to pull your credit, and instances when you have applied for credit. While most of these things won’t affect your score in any way, it is still a good idea to know where you stand. Request Your Credit Information
2. Piggyback: The easiest and quickest way to establish credit is to use a technique that is called piggybacking. By piggybacking off your spouse’s or parent’s credit, you will immediately establish credit yourself. To do this, the person you want to piggyback off of has to add your name as an authorized user to one of their credit lines. This is as simple as making a phone call. Note that this works best when piggybacking off an immediate relative.
3. Get Credit: Next, try to obtain a credit card, even if it is only for a $250 credit limit. If you cannot get approved for a credit card, apply for a secured credit card, which is a card that requires some sort of collateral – usually in the form of cash. Once you obtain your card, use it regularly but with moderation. Charging $0.10 is enough to build a credit history. Usage and paying off the bill in full is much more important than how much you use. In fact, the closer you get to maxing out your credit limit, the more it will hurt your credit score.

Follow these three simple steps to establish credit and you’ll have a credit history in no time. Before you begin, request your current credit information. It is completely possible that while you may think you do not have credit, that there is wrong information on your report that could make you have bad credit. If that’s the case, you’ll want to get that fixed right away.

Request Your Credit Information