Part 4: Watch Your Credit Score & Learn How-to Build Amazing Credit

Building Your Credit Score

Somewhere between all night study sessions and all day keggers, and somewhere between applying for jobs all day and getting your suit ready for that huge job interview, your credit score needs to be thought about. You may not care about your credit score right now, but you’ll definitely care about it when you find out that you need an exceptional one to finance that new car or to obtain that mortgage– and yes even to get that dream job. Your credit score really is that important. Today I wanted to show you guys everything you need to know about your credit score and how you can build it up over time. This will help out with becoming a financial stud.

Before we can start worrying about how you can watch your credit in college, we need to understand why a credit score is so important for life after college. Let’s look at the areas of your life that can be affected by your credit score:

Future job.

Your future employers WILL look at your credit score. If you plan on working in a successful company then there’s a great chance that they will ask for your credit score. Why? Because they can. It’s tangible proof of your responsibility level to them. The employer doesn’t have much to base their judgment on you aside from your work experience, education, and a few references. When many candidates have similar grades and work experience, the credit score will become a factor. You don’t want to let a few poor decisions with your credit card in college prevent you from getting that lucrative job in the future.

Place to live.

Would you rent a space in your home to someone that has a history of problems with making payments (poor credit score)? Didn’t think so. It’s difficult enough for most young people to convince a landlord that they won’t trash their home with all night vodka challenges. Imagine trying to do so with a poor credit history? A poor credit score will make it difficult for you to find a place to rent on campus or even after college when you decide to move out of your parents place. Living at home sucks when you don’t want to.

Higher interest rates.

When you apply for a home mortgage, a car loan, or any other form of loan, your credit score becomes the main factor. A low credit score indicates to the lender that you’re unreliable to make your payments. This means that loaning you money becomes a greater risk to them. This in turn means that they will charge you a higher interest rate if they do decide to loan you the money. The few extra percent here can cost you thousands of dollars over the years on a car loan or home mortgage.

Okay so you understand why a solid credit score is key. Now let’s look at how you can build your credit score over time to become a financial stud:

Always make payments on time.

You must always pay your credit card payments on time! Making your payments on time will improve your credit history and deem you as a responsible loaner. Making your payments on time is one of the simplest ways to build your credit score, so please try not to mess up here.

[Quick aside: Shit happens. If you miss a credit card payment I highly recommend that you call your credit card provider and ask them if this late payment has been reported to the credit bureau yet. You really need to go out of your way and try everything you can to ensure that your late payment will not affect your credit score. Especially if it’s just a one time occurrence.]

Keep your balance at zero.

It’s not enough to just make your minimum payments on your credit card. You need to keep your amounts owed as minimal as possible. Plus you don’t want to give the credit card companies your hard earned money by paying interest for this outstanding balance. Do your best to always keep your credit card balance at zero.

Charge what you can to your credit card.

I try to charge everything to my credit card– family trips, spring break trips, gym membership, cell phone, insurance, college tuition, drinks, and so on. I’m a firm believer of automating your fixed payments to your credit card. This not only makes your financial life simpler, but it allows you to passively build an amazing credit score!

[Another quick tip: Just because you automate your payments, this does NOT excuse you from looking through your bills. Please check all of your bills to ensure that you’re being charged the correct amount at all times.]

Ask for more credit.

Yes, asking for more credit can be a good thing– if you have no debt! Since 30% of your credit score is based on amounts owed, it’s a positive reflection when you have $5,000 available to you and you’re balance is at zero. Once you’ve figured out this whole credit card thing, all you have to do is ask for an increase in your credit limit. If you’ve been making your payments on time and have proof of your income, this shouldn’t be an issue at all.

Now that you know why a credit score is important and what you can do to build it up. Let’s get a little technical and look into what the credit score is actually made up of (in case you wanted to know):

  • 35% Payment history. Your ability to make credit payments when you’re expected to.
  • 30% Amounts owed. How much credit you owe compared to how much money is available on all of your accounts.
  • 15% Duration of credit history. How long have you had credit available to you? How long have you been paying your credit card balance off on time?
  • 10% Recent credit. The amount of new credit available to you compared to credit that you’ve had in the past. Closing down a credit card can affect your credit score in the short term at this level.
  • 10% Sources of credit. This is based on the different types of credit that you have used over the years.

A few final tips to help you build an amazing credit score and to become a financial stud:

Avoid closing your accounts.

This isn’t always the case but closing your credit cards can often be a problem. Each time you close a credit card, it causes a short term hit to your credit score. Of course, if you’re spending it out of control then you may need to close your credit card account. Most of the time it makes no sense to close your account. My tip is to only close an account if you really have to.

Watch out for the zero percent transfer game.

Many people have started pulling some simple and some complex tricks in order to pay off their debts using introductory zero percent offers from credit card companies. I’m skeptical about this. These strategies are often flawed because the rates are introductory, the process is easy to mess up, and you may not even save that much money in the long run. You want to play it safe with credit cards.

I hope you made it to the end of today’s edition of the how-to become a financial stud series. Once you learn to master credit cards you can definitely start calling yourself a FINANCIAL STUD. Now go have fun building your credit score.

How-to Become a Financial Stud Series:

Part 1: Get your financial stuff together.
Part 2: Take care of your academics.
Part 3: Don’t let social media screw you financially.

(photo credit: Mini Arte)

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