One should begin building his or her credit score as soon as possible, because it is not difficult with proper spending habits and is important for a stable financial future.
A credit score is a three-digit number representing one’s creditworthiness. If one has a good credit score, he or she will be more likely to be approved for a loan, mortgage or credit card. If one has a poor credit score and is approved for a loan, the interest rate will generally be higher.
“People have a misconception that building credit means that you have to use a credit card and get in debt,” said Amanda Angerbauer, service manager for the Wells Fargo BYU campus branch.
The fear of getting in debt is valid. But students do not need to get into debt in order to build credit. Angerbauer added that building a credit score is as simple as having a credit card and allowing it to build itself over time.
“College students can learn the groundwork about credit scores without going into a lot of debt,” said Paul Conrad, manager of the Student Center for Financial Management and Planning on the BYU campus.
But what is the benefit of building credit while in college? Credit takes time to generate—six months of history, according to Angerbauer. Some students will need a solid credit score shortly after graduation in order to make larger purchases such as a car or a house.
“Over time, you want a good credit history, and that may affect your future employment,” Conrad said.
He said some employers check credit scores during the hiring process. Although it is possible to be hired with no credit, a good credit score may be the deciding factor for getting a job.
“The best time to start building credit is right when you turn 18 years old,” Angerbauer said.
At 18 years old, one is eligible for a credit card. Matthew Birdsall, quantitative credit modeler for Zion’s Bank, agreed that beginning as soon as possible is important for building credit. He advised people to get a credit card as soon as they able and to use it frequently.
“You only need to use it a little bit and pay it off every month,” Birdsall said. “Using 10 percent (of the credit limit) is a good rule of thumb for building credit.”
Hill gave another option for students working on building credit scores. He said one way students can improve credit is to have apartment utilities under their name.
“Make sure you make payments on time,” Hill said. “Every time you make a payment on time it builds good credit.”
Making payments on time shows responsibility in spending. Card holders should be careful to pay off the credit card every month and to keep spending under control.
“As long as you stay consistent in your spending and pay it off every month, that’s a good way to build credit,” Birdsall said. “Spikes in spending are going to keep your credit low.”
If individuals are not careful with their funds and spend money they do not have, their credit scores will be in danger.
“Another really big part of credit score is how much of the credit you are actually using,” Conrad said. “If you have 10 credit cards and they are all maxed out, it doesn’t look good.”
Hill noted that if an individual is not responsible enough to keep credit card spending under control, he or she should not be trying to build a credit score.
“A bad credit score is much worse than no credit score at all,” he said. “Make sure you’re in a place to be responsible.”
Conrad said some individuals go into debt for the wrong reasons.
“Their thinking is that they need to go into debt and pay it off to impress creditors with the ability to pay off debt,” Conrad said.
Hill warned that students should do all they can to stay out of debt, and they should refrain from taking out loans, if possible. “Church leaders have said that three acceptable debts are mortgage, everyday transportation method and student loans,” he said.
Conrad offered some final advice for individuals working on building credit: to be responsible throughout the entire process of building credit.
“You’re trying to start a credit score, but you also need to maintain a good credit score, and protecting it is really important today because of the high amounts of identity theft,” he said.
Building credit does not need to be difficult or stressful for individuals. The simplest way to start building credit is open up a credit card and use it frequently, but within one’s financial means. There are resources available on the BYU campus for students who want to begin building credit.
“Wells Fargo has college credit cards and other types of credit cards. You can get started immediately, and it’s completely free to start building credit,” Angerbauer said.
The Student Center for Financial Management and Planning, located in the Wilkinson Student Center, offers help for students working on building a credit profile.