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Many students believe if they just focus on schoolwork, exams and grades, they’ll have it made once they graduate. However, there’s something else they ought to be working on while still in school. That’s building their credit history.
Establishing a good credit history while still in school will be just as important in helping you achieve your goals once you are out of school. A positive credit history can help you land your dream job, rent an apartment, buy a car and even save money on things like insurance and utilities.
For a job that might require some travelling, potential employers may consider your credit history because you will have to qualify for a corporate credit card to pay for meals, airline tickets, hotels and rental cars. Although the company will reimburse you for those expenses, most company cards are still personal accounts.
College is a prime time to start building a positive credit history because it may be the only time credit card companies are willing to issue credit cards to someone without a prescreened application based on a credit profile that meets their risk requirements. If it’s too hard to get a bank-issued credit card on acceptable terms, consider a store card, which is generally easier to obtain.
But, no matter what type of credit card you get, make sure you pay the balance off each month or at least stay current on monthly payments. The whole idea of a positive credit history is to prove you are financially responsible and can pay back loans. Any late payments will ding your credit score and hurt you later. Positive credit scores will allow you to save money and optimize your finances after graduation. For example, a positive credit score will give you the ability to consolidate student debt to lower rates. Or, give you the ability to get a credit card with a high value signup bonus.
Credit scores are statistical numbers lenders use to determine how likely a person will repay debt. They range from 300 to 850, with 850 as the top score for creditworthiness. Generally, a long history of paying bills on time and a low amount of outstanding debt help boost scores. Lenders also look at the types of credit a person possesses.
Lenders want to see how you manage multiple types of debt. So, make sure you have different types of debt – revolving accounts that require a different payment amount each month depending on your balance such as credit cards credit, and installment accounts that require the same monthly payment for the life of the loan such as car loans or student debt.
So, be careful of taking on a lot of new credit cards at once. Multiple credit cards can boost your credit score, but lenders generally view a lot of new credit in a short time as risky. "If you have a lot of credit cards with high credit limits and you go for a mortgage, the lender will take into consideration, 'What if you ran those credit cards up? What would be your debt-to-income ratio be?’” said June A. Schroeder, a certified financial planner with Liberty Financial Group Inc. in Elm Grove, Wisconsin.
A debt-to-income ratio is your monthly debt payments divided by gross monthly income, expressed as a percentage. It is one way lenders measure your ability to meet your monthly payments and repay loans.