College students already have a lot on their mind — career paths, majors, student loans, grades — but should credit be on that list? In college, your credit score is probably far in the back of your mind, if it's there at all. But If you want to really get ahead and start post-grad life off on the right foot, consider starting to build credit in college. When you're still in college, credit is often deemed a "future problem." It's a distant thing for real adults looking to buy houses. That's all true, but it also plays a big role in anyone's life, even college students.
Length of credit history is 15% of your credit score, which is a pretty big factor. The longer you have credit history, the higher your credit score is likely to be. It's possible to build a good credit score in a year or two, but it can take years to build an excellent credit score. Starting early and being diligent can help you build credit history before you need to seriously worry about your credit score.
Choosing a Home
Many landlords require good credit to rent an apartment. Landlords use credit scores to predict whether tenants will make rent payments on time. Without a credit score, you'll have to work extra hard to prove your trustworthiness and financial stability. Having a low credit score can lead to rejection or even a higher security deposit. It can also be easier to get a lease when you've got a few years of positive credit history under your belt.
Credit scores may be even more important when buying a home. The higher your score, the more likely you are to qualify for a mortgage and the better the terms you'll receive. Kelan Kline, half of the personal finance blogging duo behind The Savvy Couple, can attest. He and his wife built their credit in college and at 23 years old, they bought a house. "The craziest part is I had just got my job and had no paycheck to show my income," Kline said. "They used our credit scores and my job acceptance letter showing the income I would receive to get pre-qualified." For the Klines, good credit scores made all of difference and they can make a huge difference for anyone entering the housing market.
In most states, potential employers can check your credit report and even factor it into whether or not to hire. Having a good credit report is an indicator that you're dependable. It can also be something that differentiates you from other candidates. While not every employer will check, it could potentially happen and it's best to make sure your report is free of errors when applying to jobs.
Making Student Loan Decisions
If you plan on potentially refinancing student loans, it'll be more difficult to do so without a solid credit score. Refinancing can help you lower the rates of your loans and potentially help you speed up the repayment process.
Saving on Insurance
At a certain point you'll have to move off of your parent's insurance plan and, when you do so, it's in your best interest to have a good credit score. When your credit score is higher, you're viewed as less of a risk to insurance companies, giving you lower premiums. This even applies to car insurance — many U.S. car insurance companies use credit scores to help determine risk.
Getting a Car
If you're hoping to buy or rent a car down the line, having a good credit score is crucial. While you can likely find an auto loan regardless of how low your credit score is, a better credit score means a better interest rate and more options to choose from.
Starting a Business
When you build credit in college, you're setting yourself on solid ground for future endeavors. If you're a young entrepreneur or aspiring business owner, it can really pay off. If you need a business loan to launch your first business, you'll need to have a decent credit score to qualify.
Even if your near future doesn't immediately require an amazing credit score, starting now is a smart decision. Lenders and employers use your credit score as a sign of financial stability and reliability. In any situation — loans, rentals, employment or otherwise — it's a valuable asset to have.
There's good news for any college student who's looking to embark on the credit building journey. There are plenty of ways for new users to build credit in college from being an authorized user to using a secured card. Building credit doesn't have to be expensive and you can check two of your credit scores for free on Credit.com to keep track of your progress.
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