Categories: Financial Planning, General Tips
Going to college is one of the first steps of freedom as you transition from being at home with family to living independently as a young adult. With this transition comes a myriad of decisions to make about your education, housing arrangements, social life and money habits.
Each decision helps to prepare for a future stage in life, whether related to careers, relationships, or financial status. When it comes to finances, one important element to consider is how to begin building good credit that will help to support a solid financial standing needed for things like buying a car, renting an apartment, purchasing a home and other major money moves.
Open a credit card
The best way to start building good credit at a young age is to open a credit card, begin using it for responsible purchases, and pay it off on time and in full. Many student cards have a relatively low spending limit to start, which can help to avoid overspending and provide a manageable monthly payment amount.
Types of credit cards
When deciding what type of credit card to open, compare specific terms and possible rewards to help choose the right card for you. Look at items like the spending limit, APR (Annual Percentage Rate which includes interest and fees), payment terms, fraud protection options and possible rewards. Many cards offer cash back, points toward travel, or bonuses that can be redeemed for items you may need or want.
Make purchases & payments with a credit card
Purchases on your first credit card may include things like groceries, gas, cell phone payments, textbooks and entertainment. To start building good credit, consider putting one of your existing monthly recurring payments on your card (for example, a streaming or gaming monthly fee) and then paying it immediately by the due date. This way, your budget will remain the same, but you’ll be smartly building credit with every on-time payment.
It’s also a good idea to have a credit card at the local financial institution where you also have a checking account. Most people pay their credit card bill by transferring money online from a checking or savings account, or by sending a check in the mail. You can set up an online payment when you open a credit card by providing bank routing information, or by allowing your financial institution to connect your accounts if the credit card is through the same organization you have a checking or savings account with. Whether you have a part-time job or you’re getting help financially, be sure to monitor your checking or savings account before making payments to avoid overdraw fees.
Your credit rating begins when you first start making purchases and paying bills of your own. Using a credit card to start building good credit early is a smart way to work toward financial independence for wherever your path leads. Check The Summit Federal Credit Union’s no-credit credit card option, or make an appointment with a Relationship Specialist at our Virtual Branch to learn more.