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What is credit and how do I build good credit?

Going into college you are confronted with lots of ways to pay for tuition, including loans. Typically, everyone is charged around the same interest for their loans because there tends to be little to no credit history among young individuals . I know that this may not be the case for any future loans I may take and that my credit score may be taken into account when a bank is giving out a loan. So how do I begin to build my credit and work towards earning a good score?
#finance
#credit-cards
#credit
#college
#money
#loans
#student-loans

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Alex’s Answer

Hey Andres,


This is definitely a great question and I think that there is probably not enough information around this topic provided throughout your normal school career. A couple of the basics for credit include opening a credit card and paying that credit card off ASAP (day of purchase if possible). I didn't really know what was all included in a credit report until I finally received mine a couple of months ago. I would recommend checking out the link that I posted in the next steps to get familiar with what credit reports consist of and what you're getting "graded" on.


Definitely continue to do some research on your own as there are several sources that mention how to build good credit and how to avoid dropping your credit score.


Thanks,


Alex

Alex recommends the following next steps:

https://www.experian.com/credit_report_basics/pdf/samplecreditreport.pdf
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Asli’s Answer

Hi Andres,
Great question! As you progress with your life, there will be times where you would need to borrow money from financial institutions to access goods and services (including purchasing a house i.e. mortgages), with the premise that you would pay as per agreement terms. So it is important to start building a credit history i.e. your record of borrowing and repayment of funds performance . This is built as creditors report your credit performance/ repayment information to credit bureaus, it gets into your credit file and you are given a score to be used when you reapply for a new credit. As you pay on time and build a good history you can access to less costly credit.
I suggest that you talk to your bank and see what options they can offer to you i.e. credit cards/ revolving credit or instalments. If offered be careful to pay on time so that you do not pay interest.
BNPL could also be an option,
Explore all the advice from family and friends as well.
Good luck,
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Tony’s Answer

Hi Andres, it's a good idea on getting the good credit score as you're going into college. The high credit score of above 750 will save you a lot of money on the loan with lower interest rate. You can definitely follow the previous answers to get the credit cards and make full payment on a monthly basis. Never make late payment as it will ding your credit score and it's hard for you to recover with multiple incidents. Use auto payment to set it on-time to avoid missing a day or two due to your school activities.

Good luck in building your credit!!!
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Steve’s Answer

I'm glad you asked this question Andres. When I was younger I was in the same boat and now my FICO score is up there in a satisfactory place.

My approach was as follows:

1) Open a bank account with Checking and Savings.
2) Deposit your money, from either doing work or perhaps a loan from a family member.
3) Meet with your bank manager and tell that person you would like to take out a small loan, and you will secure it with your balance in your bank accounts.
4) Sign for the small loan and do deposit all that loan amount into your bank account
5) Make a couple payments over next 2 months. (Use the available money in your bank account)
6) In month 3, go to the bank and tell the teller that you want to pay your loan off in full, and do so using the available money in your accounts

Now that loan #1 is paid in full, your credit is starting to build. Wait a couple months and then do the above process again with a higher loan amount, then follow steps #1 - #6.

Keep an eye on your credit report, and you can get this information online. https://www.experian.com/lpt/credit-score-tmpl.html?

Watch your FICO score grow.

You can make this happen!
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jie’s Answer

In general, banks or lenders evaluate one's credit worthiness in three aspects:
1) Ability to pay back - how much one earns and spends. When we apply for credit or borrow money from the banks, we are obliged to provide application information such as annual income, that will help sizing our ability to pay back.
3) Stability - Some information provides signs of stability , such as how long we've been working in current job or profession, whether we own a house or how often we move,
2) Willingness to pay back - our good credit history or credit scores demonstrate we are willing to pay back. Thus it is important to build a good credit history.

jie recommends the following next steps:

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McKenzi’s Answer

Hi Andres, great question! One thing that helped me is becoming an authorized user on my parent's card. Since this allowed me to have a credit card in my name although I wasn't using it when my parents used it and paid it off in a timely manner it increased my credit score. If that is not an option for you then I recommend finding a low interest card with no annual fee. Pick something small to put on it, like gas or groceries then pay it off entirely after each use.

McKenzi recommends the following next steps:

Check out this article: http://www.magnifymoney.com/blog/college-students-and-recent-grads/build-credit-in-college1125067754/
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