College is a great time to start learning how credit works and how to build credit — Doing so could provide you with more options in the future with loans and credit cards.

How credit works.

Your bank isn’t the only one concerned with the timely repayment of your debt. Credit bureaus track your credit history and gather credit reports that reflect how well you manage your finances over time. They also assign you a credit score, which banks and lenders will use in the future to assess your credit-worthiness.

How to build credit.

Building credit takes time — at least six months of making on-time payments. You can begin building a good credit history by taking these steps:

1. Open a secured credit card account – When building credit, a good place to start is with a secured credit card. This type of card requires you to deposit funds with a card issuer that can be used as collateral if you fail to make payments.
2. Open a Credit Building Card – This type of card is customized to your needs and can help you get a good credit score as you pay for daily expenses. With student credit cards, you don’t need a credit history and sometimes there are perks like rewards or cash back.
3. Pay your credit card on time – Paying off your debt in a timely manner is a good sign of credit responsibility. Regardless of your purchases; if you don’t make monthly payments on time, it will hurt your credit score.
4. Maintain Your Credit Utilization Ratio – It is recommended that college students have a utilization ratio of 30% or below. Keeping your ratio at this level will help build a positive credit history. It shows that you’re responsible with your spending habits and adds to your credit-worthiness.

Build your credit score with good habits.

Paying your utility bills, rent and other expenses on time can also help build credit. Other ways to demonstrate your credit-worthiness include:

• Spending responsibly
• Avoid “maxing out” or reaching your maximum credit limit on your credit cards
• Paying in full every month to avoid interest charges
• Keeping accounts open for as long as possible to demonstrate your payment history
• Make sure you’re reviewing your credit score and credit report frequently

You can’t build credit overnight. With smart financial planning and good spending habits, you will eventually build your credit profile.

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Also See:

• How to make a budget.
• Be your own de-influencer.