The broke college student’s guide to credit

Leenika Belfield-Martin | Lifestyle Editor

6355848263_ec76191cdb_zFlickr User 401(K) 2012

On graduation day, many students will walk across the stage, receive their degree, get showered in accolades and begin a brand new chapter in their life.

However, most college students won’t just start their adult lives with a new degree, but with bad or no credit.

The poor financial decisions made today can mean trouble for you tomorrow, so it’s important for college students to understand how to make their credit work for them.

Seventy percent of college graduates will make a credit-damaging decision, according to an Opportunity Financial study. This will cause them to have problems from renting and buying homes to high insurance rates.

“Building a solid credit score before you graduate college is almost as essential as having great grades,” said Keva Sturdevant, financial adviser and CEO of Sturdevant Investing Consulting.

She also teaches HBCU students the importance of building a solid credit history and how to get started with investing.

During her time working with college students, the financial adviser noticed that a number of college students struggled with credit because they never had conversations with their family members about credit. She also saw that many students lacked responsibility when it came to paying off credit card bills.

“Students can change the narrative around credit and the experience by using it responsibility,” Sturdevant said.

In its most simplistic form, a credit score indicates a person’s creditworthiness and is based off of their credit history. A person’s score is represented as a three-digit number ranging from 300 to 850.

There are five main factors that contribute to your credit score: payment history, total amount owed, length of credit history, types of credit and new credit. The two most important factors, payment history and the total amount owed, account for 65 percent of your score.

Opening a credit card is one way to build credit. Sturdevant said that when a student graduates, they should have at least six months of credit history. She recommends that students should only do this when they can maturely use the card.

“Credit cards are meant to be used responsibly,” she said.

Sturdevant recommends that college students build the foundation for their credit history by making small credit card purchases that they know they can pay off. Whether this means occasionally using it for an outing or using it for your monthly Netflix and Spotify subscriptions, only buy what you know you can afford.

“A large amount of debt is not equivalent to a high credit score,” Sturdevant said. “A high credit score is built with low utilization and on-time payments. Not a ton of debt.”

A key component to building good credit with a credit card is paying off your bill in full each month.

“Always pay off anything, whether it’s your rent or a credit card,” financial accountant Lorna Johnson said.” You don’t ever want to incur debt that generates interest.”

Another way you can avoid building bad credit is by avoiding overspending. Some credit cards will approve transactions that are over a consumer’s spending limit. Opting out of this will create healthy spending habits and prevent unwanted fees. Also, never be afraid to call your financial institutions with questions.

Although many people look at their credit history with fear, you can look at it with confidence by making smart decisions when it comes to your credit.

“Respecting your money brings more money,” Sturdevant said. “Disrespecting does the opposite.”

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