How to Build Credit Score for Students

Did you know that the average credit score of a 24-year-old is 630, which is pretty low!

For students, while figuring out how to survive on a meager salary or allowance is of immediate importance, strengthening their credit history takes a backseat. Needless to say, the youth grossly underestimates the importance of a good credit history.

So, if you are someone who has landed on this page looking for ways to build a good credit history for yourself, you should definitely read on.

Why Build a Good Credit History?

One of the primary reasons why students don’t work towards building a credit score is low exposure to matters regarding credit. Young students are generally unaware that a massive student loan could destroy their credit score, which could take years to recover from.

Increasing credit usage among college-going students has led to a situation where they are walking out of their universities with not only a diploma but also a bad credit history. Students tend to believe that they’ll need a good credit score only to buy a house or take any other form of a loan, and this could seem like an eternity away while in college. As they say, however, time flies.

With this in mind, let’s look at the different aspects of building your credit score.

How to Build a Credit Score History as a College Student

The foundation of building a good credit score lies in understanding your credit report. Did you know that you can get your credit report for free through the credit bureaus? Check your credit score history and familiarize yourself with the terminologies and data shown on the report. If you see anything unusual in it, such as unidentified debts, dormant accounts still active, or any other error, it could very well be a case of identity theft, and you must inform the bureau about it immediately.

Most of the instruments used to prepare your credit score are double-edged swords. It is a widely held belief that ‘to build credit, you need to take some form of credit,’ which makes it a vicious loop. But making all the bill payments on time, managing a budget, and avoiding splurging could help you in building an excellent credit history after you have taken any form of credit. Thus, you can improve your credit history easily.

Consider Buying a Credit Card

Using a credit card wisely could help you in building a good credit score. The only condition is that you must pay your credit card bills on time. The higher the frequency of defaults, the greater will your credit score be affected negatively. The only way you can efficiently use your credit card to build a perfect credit score history is by remembering these three golden rules:

• Only use the amount of credit that you’ll be able to repay 

• Always maintain a low credit utilization ratio

• Never default on credit card bill payments. You must choose to pay the monthly credit dues via AutoPay if that facility is made available by your credit institution.

Go for a Secured Credit Card

If you’re someone who loves treating yourself to expensive products every once in a while, but you are also scared of wrecking your credit score by defaulting on a payment, your prayers have been heard! Most of the banks now offer secured credit cards that require you to pay collateral against the issue of the card, so that you don’t have to worry about defaulting on your bill payments. A secured credit card can be a fantastic way of building a credit history for a newbie for these two reasons:

1) It acts as a cushion if you default on your payments

2) It helps you in analyzing your credit utilization behavior

Become an Authorized User of Your Parent’s Credit Cards
If you do not wish to get a credit card but wish to build a credit score history, then you can reap the benefits from your parent’s positive credit score history by becoming an authorized user on their credit cards.
Pay off Your EMIs on Time to Improve Your Credit History

The power of EMIs in building a good score is often underestimated. Paying off monthly installments is a make-or-break point for a credit holder. You must make the payment for all installments on time to prevent your credit score history from hitting a low.

Keep a Tab on Your Credit Score, Always

Even though credit bureaus always offer to provide a free credit report annually, people (especially students) rarely check their credit report. There are many websites, such as mymoneykarma, that offer credit score to people for free! So go ahead make sure that you check your credit score promptly.

Avoid Co-Signing Any Debt-Related Documents with Your Friends
If you co-sign a debt-linked document for someone, then every time they miss payments, it’ll pull down your credit score as well. So, before co-signing any document, you must ensure that your friend is financially stable enough to pay off the debt. If you’re unsure about your friend’s debt-repaying capacity, then you should entirely avoid co-signing.

Avoid Using Public WiFi Networks to Make Any Payments
Using unsecured public WiFi networks to make any purchases could lead to identity theft. To avoid this, you must refrain from providing your bank account details while using an unsecured network. Sometimes, simply connecting to an open WiFi could make you vulnerable to data and identity theft.

This is possible because multiple applications are running on everyone’s cell phones at any point in time. Since all the data that we send through our networks aren’t necessarily encrypted, when you connect to a public WiFi, someone can easily access the unencrypted data.

Make Sure to Keep Your Contact Details up to Date
We tend to avoid updating our contact details, considering it to be a string of hassles. However, if you fail to inform your bank regarding a change in address, notices and intimations from the bank may reach your previous address, thereby keeping you uninformed.

College Students Can Also Get a Free Credit Report in India

In September 2016, RBI had mandated that every individual in this country is entitled to get a free credit report annually from any of the credit information companies (CICs).

These credit information companies are popularly known as credit bureaus. The major credit bureaus in India are Equifax, Experian, CIBIL, and Highmark. Alternatively, you can check your credit score from any of the trusted FinTech portals.

Go ahead and check your credit score for absolutely zero charges at mymoneykarma!

To Sum Up

As much as getting good grades is important while in college, so is keeping up your credit history. Keeping this in mind, make sure that you do devote time to managing your finances as well. What seems like a trivial matter now can have pretty significant consequences in the future. 

Keep track of your credit score and make sure that you are never left behind.