The Extra Credit Check: 7 Ways to Keep Good Credit in School
Did you exercise today?
Did you take a break from your studies?
Did you check your credit score?
Not to say that you should be checking your credit score every day but checking your credit score as part of your routine will help you maintain a healthy financial well-being. After all, poor financial health can create a rippling effect across other aspects of your life. The American Psychological Association found that six in ten adults identified that money and finances are one of the most significant sources of personal stress1. So why not start while you’re in school? Keep the stress down and be more in control of your financial well-being.
What is Credit?
In a nutshell, credit is the amount of monetary trust a financial institution, like Waldo State Bank, has in your ability to pay back what was borrowed2. Credit allows you to build trust and shows how reliable you are with the amount of money the financial institution has borrowed you. Your credit score is reflected by how well you manage your existing credit and overall debt.
How Is Your Credit Calculated?
To start, FICO and VantageScore are the two leading consumer credit scoring models that determine your overall credit score3. Your credit score is based on a three-digit point system and can range from 300 to 850. Lenders use these scores to help predict your credit risk. Your credit score is maintained by three national credit reporting agencies: Experian, TransUnion, and Equifax 4.
There are five factors taken into account within the credit scoring calculations5:
- The number of accounts you have open, including any credit cards and loans
- The types of accounts
- How much credit you’ve used versus the amount you have left
- The length of your credit history
- Your payment history
That leads us to the next point. Why bother with good credit?
The Good, the Bad, and the Credit
As you may assume if having good credit is all about building financial trust from your bank, having bad credit means that you’re more financially risky. A very low credit score reflects a history of not paying your bills or owing too much money in a short amount of time. Low credit scores can make it extremely difficult to get approved for future loans (like a car loan) or even qualify for an apartment6.
A low credit score can have implications on borrowing student loans as well. Private Student Loans assess your credit during your application process. You may be approved at a much higher interest rate, or they can deny your application completely7.
7 Ways to Keep Good Credit in School
Now that you know the basics of credit and the importance of understanding good versus bad credit, how do you build and maintain your credit? We’ve got seven tips to help you take informed steps to create a financially healthy well-being and develop and maintain your credit while in school.
1. Start with a credit card or line of credit:
This is probably the easiest method in building and maintaining credit. The earlier you start with a credit card or open a line of credit, the longer your credit history will be reflected and can work in your favor. Waldo State Bank offers a Visa College Real Rewards Card that you can help build your credit with and earn rewards points.
If you’re looking to open a line of credit, but you’re not sure how much you can afford to borrow, check out our financial calculators. They can help you determine how much you can borrow based on your pre-determined monthly payment. These financial calculators are beneficial because they enable you to be mindful of what you can comfortably pay off every month. Payments back to your loans play a prominent role in building and maintaining your credit.
Credit cards or lines of credit are a great place to start, so use them responsibly.
2. Keep track of your spending
Keeping track of your spending can easily be monitored by receiving e-statements from your bank. Every month your financial institution, like Waldo State Bank, can provide a breakdown of your expenses. Maybe there are opportunities to cut back on spending to help you focus on paying back any balances on your credit card or line of credit.
3. Make payments on time:
Continuously making payments on time helps to build your credit history and increases your credit score. Making this a habit is easy as setting up automatic payments through your financial institution. Even making the minimum payments back to your lender will work in your favor.
4. Keep your balances low:
If you have to carry a balance from month to month, keep the balance low and set up automatic payments to get rid of the balance sooner rather than later. 30% of your FICO score is determined by the amount of total debt you owe8. FICO research has found that the amount of debt you carry is predictive of how your credit performs in the future and hinders your ability to pay back what you owe9. So try to keep a low balance, and it will help you in the long run.
5. If you already have a credit card open, don’t close it:
Your credit score tends to get better as it ages. Part of your credit score is based on your credit experience over time. The more knowledge you have with actively maintaining your credit at a healthy level, the more it shows to lenders that you are a good credit recipient10. Old unused credit cards will work in your favor as part of your credit score is calculated by the length of time you have had credit open- even if you have it paid off and not using it.
6. Reduce your overall debt:
We all know student loan debt is a huge issue for students and their credit scores. Chip away at higher interest rate loans and hack away at the smaller ones once paid off. This tactic could go towards any credit debt as well.
7. Keep track of your credit score:
What you don’t know can hurt you, especially with your credit. In between classes or while you’re taking a break, check your credit score. Monitor your credit score for any changes and check your credit report to understand where changes occurred. Don't be afraid to combat any discrepancies either! Your credit is important, so any changes in your score that don't truly reflect your credit utilization should be addressed as soon as possible. Accessing your credit report will never hurt your score, so feel free to utilize free credit companies like Credit Karma or AnnualCreditReport.com 11.
Keep these tips in mind, and you’ll be on the right track to building credit and maintaining your financial well-being. Waldo State Bank is here to help educate you on building good credit best while in school. Contact us today to start your financially fit lifestyle.