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Credit 101 for college students and recent graduatesMar 24 '00 (Updated Apr 18 '00) Write an essay on this topic.It hasn't been that long yet since my college days. I can understand that if you're a student, you have other things to worry about than credit. I also understand that chances are nobody ever explained to you what credit is and how important it will be in your life, not to mention how to go about building it. Well, hopefully, this is where this review comes in. In fact, I hope that people who graduated much earlier than me will find some of these ideas suitable for them, too. Oxford Dictionary defines credit as a "reputation for solvency and integrity entitling a person to be trusted in buying or borrowing." Your use of credit instruments will form your credit history which will be kept in your credit file and followed by credit bureaus. Based on your credit history, you will or will not be able to successfully apply for a credit card, credit line, loan, mortgage, even a job or an apartment. You'd be surprised how often your credit file will matter. In her review, netKat stated the credit industry's Catch 22: you can't apply for credit without credit history; yet you can't have a credit history without applying for and using credit. Well, credit history starts when you turn 18, so if you're in college, you don't have much of it, so hopefully you haven't had too many chances to screw it up yet. It would be easier for you to start while you're in college; if you don't or make mistakes, life will not be easy for you after graduation. So where should you start? Bank account If you didn't yet, open a checking account. There are special accounts for students only with low minimum balances required. You might also check a local credit union that might have even lower requirements. New accounts come with checks numbered from 101 on. Checks with these low numbers show it's a new account, so local merchants might not accept them. Basically, they would question your credit, knowing this is one of your first checks. Here's a tip: when opening an account, ask for checks to be numbered starting at 301 or 501. Banks will do that at no extra charge. Be responsible with your checks. If your check bounces because of lack of funds in your account, it's a "credit offense." Any credit application you will ever fill out will ask you whether you have a bank account, and they will have the details. So try to open a savings account at the same bank. You can usually link the accounts together for overdraft protection - if money is replenished in your checking account, it will be automatically taken out of your savings account. Also, while you might be tempted to opt for an Internet bank account for some added benefits, as far as your credit history is concerned, an account at a traditional bank is far more important. Bills Rent, phone, cell phone, gas, tuition, medical bills - the list goes on. Chances are you're late from time to time. While there might be no immediate impact on your credit history, you'll incur all those late charges and interest at first. But if your payment is not received shortly, even if past due date, you might find yourself in bigger trouble. And I don't mean just service interruption either. Any utility, any landlord, any rental company of any sort has your social security number. If you don't pay your bills, they will report you to a collection agency, which in turn will notify credit bureaus. These charges are the hardest, if not impossible, to remove form your credit file, and they will drag on for seven full years. Learn to be on time with your bills, and if you see any unauthorized charges or discrepancies, call to correct them without delay. Credit card Now, that you've got a bank account, you need to apply for a credit card. While this sounds easier done than said, it's actually not at all. Credit cards differ in many ways, and those that come with free water bottle or T-shirt are unlikely to be the most desirable. I'm talking, of course, about companies like Capital One, MBNA, First Card, and First USA that are notorious for aggressively signing up students. Instead, go through the applications posted on campus. Find out the card's annual fee (you better make sure it has none!), APR (permanent, not the one that skyrockets in 3 months), fees, rewards if any, online payment availability, etc. When applying for your first card, keep in mind that Gold/Platinum card application will be most likely considered for a standard card instead, and American Express card might be harder to get. Don't apply for more than two-three cards; more inquiries to your credit report look bad. I'm sure you don't need another reason to pay your credit card bills on time, but I'll do it just the same. Once in a while, in circumstances sometimes beyond your control, you might be late with a payment. Call the card and explain the situation or make up a believable story. If you're a customer in good standing and have proven it over a period of time, you're likely to get a break. Most credit card companies will waive a late fee once a year as a courtesy if you call and ask for it. In the next few years, make it a habit to call up your credit card companies every 6-12 months and ask them for a moderate ($500-$1000) credit line increase. Also, before graduation apply for at least one platinum and one American Express card (their Optima and Blue Chip have no annual fee). They will be much harder to get once you graduate, because as a student you can put down "student" in the occupation column of your application and legally use your tuition as part of the reported income. If things aren't going your way If you're rejected on two or three of your first credit card applications, don't despair. First, order a copy of your credit report. Any credit rejection letter supplies a toll-free number for you to call and get a free copy within sixty days. Look over the report to see any possible discrepancies. Make it a habit to do this once a year. The trick to get a free copy is to call one of your cards and ask for a $5,000 credit line increase. If you're rejected, you're entitled to a free credit report. If there's nothing to dispute in your report, you have two options left. One is to apply for a "secured" card. You will pay a deposit (typically, $500) and will be able to charge the card until there is still money left on your deposit, then you'll need to replenish it. It is a debit card de facto, but it will earn you credit history. Avoid this option if you can, and don't stay with that card long. Loans The second option is to go to your bank and ask for a multi-purpose loan. As a student with an account in that bank, you're very likely to get approval even if your credit history is less than perfect. My friend back in college days did exactly this: borrowed $1,000 for one year at some ridiculous rate of 14% or so. He brought back the money with interest in two weeks. $80 in fees and interest bought him a fully repaid loan, and, as his credit score jumped, credit card applications started pouring into his mail a week later. Vast majority of college graduates will have a student loan of some sort. Usually, they're interest-free until about six months from graduation. Just before those six months expire, consider your loans. If one of them is a small one ($1,000 perhaps), it might be worth for you to pay it off in full. Your credit rating will improve dramatically. Otherwise, consider making a prepayment on the one with the highest rate, to reduce your principal. Hope these few pointers are helpful.  |
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