Lack of credit history is an obstacle for upcoming grads ready to finance a new car or upgrade furniture. Here are a few smart ways for students to start building credit history:
Credit cards Some plastic used responsibly can go a long way towards creating good credit. There are several options for students to help avoid high interest rates and annual fees. A secured credit card is one of the easiest for the credit-less to acquire and requires a deposit equal to the credit limit. Rates and fees vary, so comparison shopping is a must. Another option is to become an authorized user on a parents' account. Students don't have responsibility for the bill, but still get the benefits of on-time payments on their credit report.
Store credit cards A merchant credit card is best used for necessities such as gas, groceries, etc. They help build a steady history of payment and fit easily within the framework of a budget. Most carry high interest rates so, ideally, you should pay off the balance each month.
Open a bank account This is a given. It's time to put the cash-only allowance policy to an end. While bank account information doesn't appear on credit reports, lenders commonly request it to verify steady income. For those new to managing their own finances, Mint.com is a useful resource for tracking accounts and expenses.
Co-signers Parents or other close relatives are usually the best co-signer options. Having someone with established credit history co-sign a loan or credit card application leads to lower rates and a greater chance of approval while building credit for both parties.
Student loans Student loans aren't ideal, but sometimes they're unavoidable. Typically they have low interest rates and don't require repayment until after graduation, making them a good credit enhancer. The catch is no credit until payments come due.
Employment history Jumping from job to job is pretty common in college, but sticking with one employer is ideal. Employment history appears on credit reports and lenders prefer to see someone who has stable employment with a steady increase in salary.
Pay your bills If there's a payment coming up and things are tight, don't skip it! Do what you have to in order to get that bill paid. A few missed monthly payments can have a serious impact on a credit score for many years.
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