College students usually graduate college with one of two extremes in their credit rating: very little credit, or a credit score so far in the hole you can’t see the bottom. Luckily for these students, there are ways to build credit that are open to anyone, no matter their credit score.
How can I build credit if I can’t get a credit card?
Many individuals have too low of a credit rating, either from never using it, or from destroying the rating, to qualify for a credit card. Capitol One offers a beginner’s credit card with a low credit limit that most people are eligible for. There are also student cards that only students can apply for that have very low credit limits, but can be raised quickly through consecutive payments.
Why do I need credit?
To apply for a loan on a house or a car, a person needs credit. To get a credit card, a person needs a certain level of credit. The majority of the American economy operates on credit, and it is always good to have an emergency card on hand to handle unexpected expenses when funds are low.
How can I build my credit back up?
Here’s the meat of the article. With the following techniques, anyone can take control of their credit situation and build it up to an acceptable level.
- Purchase something through a service such as Finger Hut.
Finger Hut is a magazine that sells products on a pay over time system. Similar companies are Rent-A-Center and other pay-to-own businesses. These companies allow someone to essentially rent a product, but if they rent for long enough, they own it. With no credit checks, these companies are great for people with less than perfect credit that have sufficient income to meet the requirements. By paying on time each money, you can build your credit rating back up to the level you want.
- Don’t pay off your credit card in full each month.
This only works if you already have one credit card. While this may go against all conventional wisdom, if you pay a set amount each month so that you don’t face interest, but are also above the minimum payment, then your credit card can help build your credit by proving you are reputable and trustworthy financially.
- Don’t miss a bill payment.
Things like phone bills, power bills, and cable bills can and will hurt your credit if you are late on paying them. Make sure they are paid in full each month – do not take the offered additional month to pay if you can avoid it, as this hurts your credit a little bit each time. These seemingly small deductions from your score add up quickly over time.
- Pay student loans in the same way you pay credit card loans.
Never miss a student loan payment. Not only does this increase the interest you are forced to pay, but a missed payment counts against your credit score. By paying above the minimum each month, you avoid interest payments and also build your credit back up over time. Since student loans take a while to pay off, this is a consistent method for constantly building your credit score.
- Build a rainy day fund.
Setting up a savings account can help, since credit score takes into account total income and net worth. If credit card companies see that you have $10,000 put back in savings, they are much more likely to award you with a card than if you have no savings.
- Cancel unnecessary cards.
Having too many credit cards can actually hurt your rating. Companies will see this as you relying on credit to survive, which makes you a payment risk. By cutting down the number of credit cards you have to a smaller amount, you can help your overall credit score and reduce the chance of a shopping spree.
- Don’t leave your credit limit maxed out for too long.
A month or two is fine, but no more than that. If you do not fall below an acceptable amount within that time, you score can be affected. Try to keep your outstanding balance below 30% of your credit limit.
Rebuilding (or building up) a credit score isn’t an overnight process. It takes months, sometimes years – but if you are consistent in your approach, it can be done.