How to Build Credit History
How important is Credit History in College Admissions
Generally speaking, your credit history doesn’t necessarily have much bearing on your worthiness as a student. College and university admissions processes rarely involve a credit check. Admissions decisions are typically based on academic performance, standardized test scores, letters of recommendation, personal essays, and extracurricular activities.
However, it’s important to note that while your credit history may not directly impact your college admissions, it can affect other aspects of your college experience. For example, if you plan to take out private student loans, your credit history could affect your eligibility and the interest rate you’re offered. Similarly, if you’re renting an apartment or setting up utilities, your credit history might be checked.
Therefore, while your credit history may not directly affect your college admission, maintaining good credit is still important for your overall financial health and can impact various aspects of your life during and after college.
Building a Credit History
Building a credit history is an important step in establishing your financial health. Here are some ways to build your credit history:
- Get a Secured Credit Card: A secured credit card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit. You’ll use the card like any other credit card: Buy things, make a payment on or before the due date, incur interest if you don’t pay your balance in full.
- Become an Authorized User: You could start building credit by becoming an authorized user on someone else’s credit card. This means you can use their credit card, and the account’s credit history can appear on your credit report.
- Apply for a Credit-Builder Loan: These are loans specifically designed to help people build credit. The money you borrow is held by the lender in an account and not released to you until the loan is paid off.
- Apply for a Store Credit Card: Some retail stores offer cards that are often easier to get than regular credit cards. Be aware, though, that they often come with high interest rates and low credit limits.
- Have Rental Payments Reported: Some rent-reporting services allow your rent payments to be reported to the credit bureaus, which can help you build credit history.
- Pay Bills on Time: On-time payment history is the most important factor when building credit. Your payment history, which is one factor that makes up your FICO score, accounts for 35% of your FICO credit score.
- Make Small Purchases and Pay Them Off Quickly: This can help you build a history of timely payments, which is important for a good credit score.
- Avoid Debt: Try to live within your means and avoid taking on debt whenever possible.
These methods can help you build credit, it’s also important to manage your credit responsibly. This includes paying your bills on time, keeping your credit utilization low, and applying for new credit only as needed.
Maintaining Credit History
Maintaining good credit is crucial for your financial health. Here are some ways to maintain good credit:
- Pay Your Bills on Time: Your payment history makes up 35% of your FICO score calculation. Always aim to pay your bills on or before the due date.
- Keep Your Credit Balances Low: Having a low balance and a high credit limit is the perfect equation for a healthy credit utilization rate. As a rule of thumb, it’s best to keep your credit utilization ratio below 30%. However, a ratio below 10% will result in an even better score.
- Make Sure Your Oldest Credit Account Stays Open: The length of your credit history is a significant factor in your credit score. Keeping your oldest credit account open can help maintain a longer credit history.
- Charge the Basics: Use your credit card for small, regular purchases and pay off the balance each month. This can help you build a history of timely payments, which is important for a good credit score.
- Monitor Your Credit Reports Regularly: Regularly checking your credit reports can help you spot any errors or suspicious activity. You can get a free credit report from each of the three major credit bureaus every year.
- Use Credit Wisely: Use credit cards and loans responsibly. Avoid maxing out your credit cards or taking on debt you can’t afford to repay.
- Limit New Credit Applications: Applying for too many new credit accounts in a short period of time can lead to hard inquiries on your credit report, which can temporarily lower your credit score.
It’s also important to manage your credit responsibly. This includes paying your bills on time, keeping your credit utilization low, and applying for new credit only as needed.
