A Guide To Building Credit As A College Student
Financial Advice
By NAYELI CARRILLO/Staff Writer
It follows you everywhere. It impacts your financial future. This number becomes a point of judgement, in which people reject or approve your financial decisions.
“A credit score is a measure of confidence about someone’s credit worthiness and the likelihood of repaying borrowed funds,” said Susan Doty, senior lecturer in economics and director for Economic Education & Financial Literacy Center at UT Tyler.
Building credit can seem intimidating for college students.
Credit is the repayment obligation of cash, goods, or services. Knowing the consequences of a low credit score, acting responsibly when using a credit card and learning about the topic can be the differences between a financially stable future or overbearing debt.
“There are many different types of credit scores. One of the most commonly used credit scores is the FICO 8, which ranges in value from 300 to 850 with 700 considered a good score and 800 considered an excellent one,” Doty said.
Lenders use credit scores to decide length, amount, and the interest rate charged on loans.
“Most banks use that [credit score] as a as a reference to how comfortable they are giving a loan to you and at what rate,” Landon Thornton, finance and computer information systems major at UT Tyler, said. “So, your higher credit score, the larger the loan you can get, as well as a lower rate, and other factors as well, such as collateral and how long you’ve had credit.”
To receive the benefits of a high credit score, a person must have a positive credit history. The three national credit bureaus, Experian, Equifax, and TransUnion, determine a credit score. A credit report includes the amount of time you’ve had an account open, the credit limit, if you have made late payments and previous balances.
“Once you get out of college, getting an apartment, you lot of times need a credit score or some way to show that you can make payments,” Thornton said. “As well as buying a new car after you graduate, a lot of these little things you don’t think about but having a credit score of 750 versus zero when you go that first car loan could make a big difference.”
Credit is commonly built through credit card use. When applying for a credit card, research the company and its rates. Incentives, interest rates and amount of credit offered are things to consider.
“The benefits include the opportunity to build credit, increase purchasing power, buy safely online, and often earn points for future purchases or travel. The costs include the interest paid on deferred balances and the temptation to overspend,” Doty said.
Doty said credit cards are neither good nor bad. It is the decisions that credit card users make that are good or bad.
“Students should not get a credit card right away unless they can pay off the monthly balance in full every month,” Dr. Chen Wu, UT Tyler associate professor of finance said. “While getting a credit card helps build credit history, it charges very high interest rates on outstanding balances not paid in full and having a credit card often encourages young people to buy things they really cannot afford.”
Thornton added that it comes down to the temperament of the card user, as credit cards are a great way to extend beyond your financial resources.
Students can plan for a financially stable future by seeking knowledge, either by taking a finance course, joining the Financial Management Association organization ran by Thornton or visiting the UT Tyler Financial Wellness Center.
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