Why Do I Need Credit?
Why do I need Credit?
According to the Google definition, a credit report is “a report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.” From my perspective, a credit report is what decides if you get a car loan, a home loan, or a loan for any other big ticket item.
Your credit report basically includes your history of payments on a credit card, a Sears’s card, or a cell phone plan. Every time you missed a payment, it was noted on your credit report and every time you apply for any type of loan from a company, they look up your credit history. Your credit report tells companies what they should loan, for how long, and at what percentage interest rate.
College students usually do not have much credit history, unless they have a credit card, but it is a good idea to get your credit report at least every two years to make sure it accurately shows your credit history. The three major companies that provide credit reports are Experian, Equifax, and Trans Union and they will provide you with a free credit report once a year just by request. If there are any mistakes on the credit report, you can get them fixed in writing and sometimes you can even get a company to remove a point against you if it has been a significant time or for good reason.
Why should I build credit? Why do I need credit? Most college students leave college without building any substantial credit history. When you are ready to get a car loan, a house loan, or make any other large purchase you will find yourself faced with high interest rates – and that is if you are lucky. You will likely be turned down with out a cosigner with a solid credit history.
College students can build credit and sound financial habits in several ways and two of the easiest are paying bills for small subscriptions and buy using a credit card. For example, college students should put their cell phone or magazine subscriptions in their name rather than their parents’ name and pay bills on time, every time. It is also a good idea to apply for a credit card and learn to use that credit card responsibly. When you fill out a credit card application you are taking the first step to building credit, but simply having a credit card will not necessarily improve your credit rating.
To earn a solid credit score as a college student you need to show signs of responsible spending habits. If you choose a credit card with a low credit limit and pay your monthly bills on time, you will begin to improve your credit score. This cannot be stressed enough: pay your credit card bills on time. This is the single most important sign of good credit and the more often you do it, the more credit you build. On the same token, every payment you miss or are late on results in a mark on your credit report which all lenders have access to and use to determine whether you are credit worthy and at what rates of interest to loan you money.
As a college student trying to build credit, you should also keep a low balance on your credit card. Running up the credit card bill every month is a sign of poor spending habits and suggests you are at risk for default on your loan. The best ways to ensure you are following responsible spending patterns are by spending within your income and by planning so that you are able to pay your monthly balance even in the case of emergency. Try to keep your percentage of purchases on a credit card under 25% of your monthly income. One more time for effect: Pay your credit card bills on time.
It really is that simple to begin building credit. Is there any other way than applying for a credit card? Not really. You have to show your ability to pay credit to earn the right to credit. Down the line when you are looking for an auto loan or home loan you will be glad you filled out that first credit card application!
Learn more about the basics of credit and student credit cards or compare offers and apply online via StudentCreditCards.com.
Student credit cards.com @ April 19, 2008