Why Students Should Start Building Good Credit Now
For many college students, the idea of establishing credit rarely crosses their minds; or if it does, they assume that credit is something that they won’t have to worry about until far after graduation. This isn’t the case, however, as building good credit during your years in school is crucial for preparing you financially for life after college.
Why Good Credit Matters to Recent College Grad
1) Employment Opportunities
Your credit score can start impacting your life immediately after college. Many employers conduct credit checks of potential employees, and a bad credit score could make you seem financially irresponsible, which could ultimately deter an employer from hiring you. If you choose to follow your dream of becoming an entrepreneur instead of finding a job right out of college, a good credit score is even more important. Most young entrepreneurs do not have the capital to successfully start their own businesses, and therefore must rely on receiving small business loans, which are difficult to obtain without good credit.
2) Living Situations
Aside from your career, your credit score also affects your day-to-day life. Unless you plan on moving back in with your parents, having a good credit score will help you find a place to live after graduation. Many landlords will conduct credit checks when you apply for a rental to ensure that you have a good history of paying off your debts, and a bad credit score could cause landlords to turn you away.
Finding a method of transportation can also be difficult when you have bad credit, as both leasing and buying a car is easiest and most affordable with a good credit score. Most recent grads do not have the cash to buy a car, which means that a loan is necessary. Not only does your credit score determine whether or not you qualify for a loan, but it also helps lenders decide on the interest rate of the loan. Establishing a good credit score while you are still a student can help you save money by avoiding high interest rates on car loans.
Ways College Students Can Build Good Credit
Many students are under the impression that they can only start building credit once they have a reliable source of income. Whether you work part-time at your school’s cafeteria or babysit occasionally on the weekends, you can (and should) start building credit immediately.
1) Ask your parents for help
Owning a credit card is a huge responsibility, as you must realize that every time you swipe the card, you are using real money that you are obligated to pay back. Because of the weight of this financial responsibility, students can ease into establishing credit by “piggybacking” on their parents’ account. The parents can monitor the student’s spending since the child is an authorized user of the account, and if the parents have good credit, the student’s credit score will also improve.
2) Apply for your own credit card
It is surprisingly easy for most college students to get a credit card, as many lenders assume that your parents will help you out if necessary. When deciding on which credit card to apply for, make sure to consider the card’s interest rate, credit limit, fees and penalties, and rewards program. Be extremely cautious when using your credit card, however, as many students tend to get carried away with spending when their credit limits are high. To avoid this, ask your credit card issuer to keep your credit limit low so that you can easily pay off any balances you incur.
3) Make small purchases
As a student trying to build good credit, it is important that you do not spend more money than you can afford to pay off. Try to keep your spending under 30% of your card’s limit, and use it mainly for occasional small purchases such as food, music, or movie tickets.
4) Pay off your balance every month
The most important step in building good credit is paying off your balance every month. When you are first trying to establish credit, it is a good idea to avoid carrying a balance on the card. To do this, though, you must be strict in your spending habits and only purchase things that you know you can afford.
College is not only a time to receive a good education and to learn how to live independently, but it is also a great time to start establishing yourself financially. Building and maintaining good credit in college can be easy and hassle-free if done correctly, and a good credit score can be invaluable after graduation.
There’s been a lot of talk in the news today and over the weekend about Obama meeting with the heads of the largest banks today. He’s having a little sit down in Washington with over a dozen bank heads from Bank of New York Mellon Corp., Bank of America Corp., U.S. Bancorp, JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs, Citigroup, etc, to supposedly read them the riot act about lending to small and medium size businesses.
The main thrust, which he alluded to over the weekend on television when he called the heads of the banks (the people he called “fat cats” on national television), is that these banks largely created the current economic crisis, were bailed out with hundreds of billions of dollars in tax payer money, got back on their feet, paid out huge bonus to their executives, but now aren’t stepping up to the plate to lend money again, helping put the 10% of unemployed Americans back to work. He’s also more than a little peeved that these banks aren’t jumping on the bandwagon to support the Consumer Financial Protection Agency that cleared the House last week, but are instead spending millions lobbying against it. Banks on the other hand argue that Obama is greatly oversimplifying the issues at hand, that it’s more complicated than just saying “okay, we’re going to lend money again”, and that the tighter lending standards are necessary to keep the country from going into another economic whirlpool of defaulted loans.
Michael Steele, the Chairman of the Republic Party, agreed with the bankers that returning to the loose lending practices of the past would be disastrous. He instead suggested an alternative to irresponsible lending by saying “Let’s eliminate the capital gains tax, reduce the unemployment tax and give some incentives for small businesses.”
So who’s right? Do the “fat cat bankers” need to open the floodgates of cash? Do we need less regulation for the banking industry so they can make their own corrections? Should we give small and medium size business owners a break on taxes and instead incentivize them? In my opinion it’s a little of all of the above. Let’s hope these talks bring some cooperation rather than the typical blame game, because that’s the only thing that’s going to benefit the common man.
So here’s my open letter to bank executives, Obama, and everyone else with a say in this:
To whom it may concern,
Please relax lending standards, but do it responsibly. There is middle ground between the loose and fast practices of the early ‘90s and the almost complete lack of lending now, find that middle ground for the sake of the 10% of the country out of work, the hundreds of thousands of people who have applied for mortgage modifications and have been denied, the business owners working hard to turn a profit and create and maintain jobs who desperately need funds to grow, and everyone else who is just fine right now, but won’t be if the economy doesn’t turn around. Obama, please stop playing the blame game and focus on responsible solutions to unemployment and practical banking regulation. Congress, for the love of all that’s good and decent, fix the mess you created with the Credit Card Reform Act. By giving in to lobbyists you’ve created a situation where the banks are killing us with fees and interest rate hikes while destroying our credit with lower credit limits before the new rules go into effect next year.
There’s a way out of this economic mess, work together to find it for the good of everyone rather than covering yourselves. Be unselfish for once. Turn this all around before it’s too late.
Treasury Secretary Timothy F. Geithner, speaking at a small-business financing forum at the Treasury Department, called on banks to “get back to the business of lending.”
The Treasury Department released a report earlier this week showing that many of the banks that received government aid in the form of stimulus money earlier this year continue to tighten credit. Loan originations in September fell 6 percent at Bank of America and 14 percent at Wells Fargo compared with the August.
Geithner went on to state that when banks rein in their lending it is the small businesses that are hurt the most since they rely on banks for 90% of their lending, versus large corporations that only get 30% of their loans from banks. “Banks bear some responsibility for the extent of the damage caused by the crisis, you carry a substantial obligation to help our communities get back on their feet.” he told the banking representatives.