For most college students, credit won’t be a topic that’s too high up on their list of priorities.
And it’s true, there are more important things to worry about during this time of your life – but understanding this complex topic now will stand anyone in good stead to manage their finances going forward.
During their time at college, students will naturally become more financially literate. Not only will they have to figure out for themselves how to budget their money, but they’ll also have to deal with more general financial responsibilities, potentially for the first time, such as organizing taxes.
There are so many different facets to understanding credit, from interpreting your credit history, to being aware of the factors that can improve or hinder your score.
In this post, we’ll highlight some of the most important things that students in particular need to know about credit, to help you start building a more secure financial future that’ll benefit you long after graduation.
Why Should You Worry About Credit?
Although it may seem like the state of your finances won’t hinder you until much later on in life, any mistakes or poor decisions you make now could affect you for years to come.
Establishing a good credit history is important, as it can help you qualify for loans and lower interest rates in the future.
A poor credit history will mean that lenders will see you as more of a risk, potentially affecting your ability to qualify for loans or credit cards. While it’s not the be all and end all that you focus on building your credit history during college, it’s a great time for you to start.
How to Build a Better Credit History
When it comes to credit, students often find themselves starting from scratch.
Fortunately, there are a few things that they can do to start building their credit history. One option is to get a secured credit card, which is backed by a deposit that you make upfront.
This can be a good choice for students who have a job, and so can pay using a credit card, and then immediately pay the balance from their current account. This way, you build up credit without the risk of spending money that you don’t have.
You can also become an authorized user on another person’s credit card account, such as a parent or guardian. By taking these steps, you can start to establish a positive credit history that will benefit you down the road.
Pros and Cons of Student Credit Cards
Though they won’t be right for everyone, some banks do offer credit cards exclusively for students. These are designed to help young people to start building a credit score, but they can also offer some handy rewards that are tailored for this demographic.
There are a few things you need to be aware of before getting a credit card, since getting one at the wrong time can do more harm than good to your financial health.
On the one hand, credit cards can provide students with access to emergency funds if they find themselves short of cash. However, if used irresponsibly, this safety blanket can make it easier to fall into debt, with interest being charged if you can’t afford to pay your bill on time.
You may also incur additional fees, which will be detrimental to your credit score. Generally, considering the average student’s financial situation, banks place lower credit limits on these cards, to help users to stay in control.
You should also consider where your income is coming from during your college years, as this will be key to determining how you can use your card.
For instance, if you’re receiving multiple streams of income, be it from a job, parents and a student loan, for example, you’ll find it easier to pay off your bill. But if you’re already tight for cash, and aren’t receiving regular financial aid outside of your loan, this is when problems with credit cards could start to mount up.
Credit Can Affect Your Job Search
As many postgraduate students will vouch, finding jobs after leaving college can be difficult at the best of times.
However, your job search can be made all the more challenging should you be applying with a bad credit score on your record.
When you’re job hunting, your credit history can be a factor in whether or not you’re offered a position. Employers may check your credit report as part of a background check, and if they see negative information, they may conclude that you’re not responsible enough to handle the job.
Additionally, poor credit can make it difficult to get approved for a loan or lease, which can put a strain on your finances.
If you’re going through a tough financial time, it’s important to be honest with your potential employer about your situation. They may be more understanding than you think, and being upfront will show them that you’re taking responsibility for your actions.
Ultimately, having a good credit history is one way to make yourself more attractive to potential employers, but it’s not the only thing that counts.
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