A good credit score is important for students to have. Loans are a necessary part of life for most of us. Building a solid credit history and maintaining a high credit score can have a dramatic impact on your quality of life now and in the future when you’re considering applying for a loan
One of the most exciting parts of growing up is becoming financially independent, but learning how to do so can be challenging. Building good credit is a must: It will help you qualify for loans, auto insurance, rental applications, cell phone plans and can even affect whether you get a job.
CreditCards.com asked several financial experts to explain how students can effectively build good credit. Here’s what they recommend:
1. Open up your own credit card
If you can provide proof of income, it may be time to apply for a card in your name. But know that things have changed from the days when every college freshman’s dorm mailbox overflowed with credit card offers and card issuers rained free pizza and T-shirts on students who applied.
In this post-Credit CARD Act era, most issuers are no longer clamoring to put a credit card in the hands of every college student. Some no longer offer student cards; others switched to pushing debit cards on campus.
Also, now that when you receive a credit card that’s all yours -one with no co-signers — the responsibility for handling the card wisely and repaying your debts falls squarely on your shoulders.
2. Get the right credit card for you.
Once a student is able to qualify for a regular card on his or her own, it’s important to remember that not all credit cards are the same, says Clarky Davis, former spokeswoman for CareOne Credit Counseling, a debt relief service provider based in Columbia, Md. and formally known as the “Debt Diva.” Before a student applies for a credit card, “He or she must do some research to find a card with the most benefits — a lower interest rate, no annual fees, reasonable credit limits and clear billing policies.”
If you think you might carry a balance, go with a no-frills, low-interest credit card. A reward credit card may sound cooler, but the higher annual percentage rate (APR) and possible annual fee won’t be worth it.
Sullivan says some students should consider starting out with a retail card. Retail cards come with fewer benefits and lower spending limits, Davis says, but using this card and paying the bill regularly will build good credit.
Davis says those who can’t qualify for a retail card will need a secured credit card, which is attached to a savings account. However, if the student pays the bill responsibly and on time, he or she will eventually qualify for a regular credit card. That includes student credit cards, products that are directly aimed at consumers who may lack significant borrowing history.
A CREDIT CARD IS A VALUABLE FINANCIAL TOOL. HOWEVER, STUDENTS MUST BE ABLE TO MANAGE THEIR CREDIT CARD RESPONSIBLY TO BENEFIT FROM USING THE TOOL.
3. Use the credit card for occasional, small purchases.
Since responsible card use and on-time repayments will help you build a good credit history, while also discouraging the bank from closing your account due to inactivity, don’t just leave that plastic sitting in your wallet.
“Getting a credit card means you start a credit history and shows on your credit report that you have one account and no late payments,” Sullivan says. “But if you really want to start credit, you have to use the card.”
One way to do that? Consider putting small, recurring charges on your card: Think of regular expenses, such as groceries or website subscriptions (such as Netflix), that you won’t have trouble repaying at the end of the month.
4. Pay off your balance each month.
When you are first building good credit, do your best not to carry a balance on the card. Use the card only for purchases you can afford, and pay off the balance at the end of each month. What if you can’t? You are living beyond your means and shouldn’t be making those purchases.
A student should only have a credit card if he or she has a job or some sort of income to support this financial tool,” Davis says. If you carry a balance, you will owe interest fees. Why pay a fee if you don’t have to?
5. Do not apply for several credit cards at one time.
Now that you have credit in your own name, don’t go wild. If you apply for too much credit in too short a period of time, your credit score will fall. If you have built up strong credit over several years, it will hurt you less, “but if you have barely established credit and apply for multiple cards, it can lower your credit score significantly,” Sullivan says.
One credit card should be enough for most college students, he says. How many cards should you have? “To prevent excessive credit card debt, it’s better for consumers to have as few credit cards as possible. Having just one card is ideal for most students,” Davis says.
6. Don’t co-sign for your friends.
Just like you may need an adult co-signer to get approved for a card, your under-21 friends will, too. To help them get approved for a card, some of these friends may approach you to become a joint account holder. “I have found that some students are getting older students (fraternity brothers, etc.) to co-sign. That is quite dangerous,” Sullivan says in an email.
Consumer experts have a tip for you: Don’t. That’s because when a friend slips up — by taking on too much debt or missing payments to the bank — the co-signer can quickly see their own credit ruined.
“You not only become liable for everything charged if your friend decides not to pay, but it could blemish your own credit record,” says Edgar Dworsky, founder of the website ConsumerWorld.org.
Making your friend an authorized user also poses risks. Once again, their mistakes can hurt your credit, although — unlike when you co-sign on a card — an authorized user can be easily removed from the account.
This article originally appeared on CreditCards.com