Loans and Taxes
Building good credit can seem like an uphill battle. You need credit in order to build credit. The way to build a solid credit history is to successfully pay off loan, or accurately manage a credit card. But you are unlikely to be able to secure a loan or a credit card without a solid credit history. It can seem like you are running around in circles without getting anywhere. However, there are ways for college students to build a respectable credit history while still in school, and without going mad in the process.
One of the best ways to get started down the road to a good credit score, is to open a checking and savings account. In addition to helping you better manage your money, active banking accounts will provide you with a stable financial history that will be attractive to future creditors.
Securing a small loan with a cosigner can also help students build their credit history. The use of a cosigner will help you secure the loan, and as you make timely payments your credit score will grow. Banks consider that having a cosigner with good credit vouch for you makes you less of a risk, and so will agree to underwrite the loan. Once you pay off the loan successfully, you will have established a history of sound financial management. A small loan taken with a cosigner is an excellent way to build good credit quickly.
Once you have established a bit of credit, it's time to apply for a credit card. Many companies offer "student credit cards" and it may be best to avoid these. While they may seem tempting, as a general rule the interest rates are prohibitive, especially for students with a small income. Rather, apply for a credit card through your bank or credit union. If necessary have someone act as cosigner on the card.
If a standard credit card is still out of the question, consider applying for a secured card. These are basically prepaid credit cards that give you access to money you have deposited into a secure account. While not strictly credit, these cards do help students build an ongoing credit history. Many secured cards also offer card holders the opportunity to switch to an unsecured credit card after a predetermined period of time.
Gas cards and department store credit cards are another good way of establishing credit. These cards are issued by individual stores and companies, and are generally easier to secure than a major credit card. While these cards do not build as much credit as a Visa or MasterCard, they are useful as a way to begin building a solid credit history.
Finally, if you have secured a credit card in attempt to build your credit history you must make sure to use them on a regular basis. The only way to build your history is to use your credit, and to pay off your cards in a timely fashion. Try not to use more than 30% of your credit limit. Keep your balance low. This will make it easier to manage your payments, and will show creditors that you are responsible and are unlikely to overextend yourself financially.
The road to good credit can be a bumpy one, but with the right plan of attack you can begin building a solid credit history that will pay huge dividends in the future.