As many young adults ambitiously start their lives in college, they quickly find that having good credit is imperative to reaching their goals. After all, your credit history affects most of your financial decisions, including entering into a cellphone contract, purchasing a car, buying a home, obtaining insurance and even landing a job after college. Responsible credit usage during college can help you acquire a good credit rating early, streamlining your finances post-graduation.
Secured Cards
If you are young and have no credit history, you may struggle to find a creditor who will open a line of credit for you. Secured credit cards, however, are easier to obtain. You must supply the company with a deposit, usually equal to the amount of your credit line. If you default on your credit card, you lose your deposit and the credit card company will use the money to pay off your debt. On the other hand, if you make responsible payments on your credit card, your credit history will slowly improve, eventually qualifying you for an unsecured credit card.
Unsecured Cards
You need not supply your credit card company with a cash deposit or collateral to secure a traditional credit card. Instead, your lender will provide you with a credit line and interest rate according to your credit score and income. Be careful to choose credit cards with the lowest available interest rates and little to no annual fees. Maintain responsible payment habits and avoid using a large percentage of your available credit, as 30 percent of your FICO credit score is related to your debt-to-credit ratio. With regular payments and card usage, your credit history will continue to grow and improve.
The Credit CARD Act
In 2010, the Federal Reserve implemented portions of The Credit CARD Act to protect young consumers from financial peril and irresponsible credit card usage. According to the Federal Reserve Bank, the law will keep many college-age adults under 21 from acquiring a credit card. If you are under age 21, you must provide creditors with proof of your income or use a co-signer to open a line of credit. Your co-signer must consent to your attempts to increase your credit line or make other major changes to your account.
Considerations
If you are unable to obtain a credit card due to your age, you may have success building your credit in other ways. For example, if your parents finance a vehicle for you, you can ask to add your name to the loan as a co-signer to build your credit history. Similarly, if you must finance part or all of your college tuition, your timely student loan payments will help you build a reputable credit history over time.
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