Why High School & College Students Should Build Credit
As students begin their journey into the adulthood, it is important for them to understand the significance of building credit. Creditworthiness plays a significant role in everyone’s lives, from obtaining a car loan to getting a good mortgage rate. However, building credit takes time, and starting early can do wonders for one’s financial stability. In this article, we discuss why it is important for students to build credit and how to do so.
High School & College Students Building Credit
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Definition of Credit
Credit can be defined as a sum of money that is borrowed and expected to be paid back with interest. It is generally used to refer to the ability to borrow money, based on one's reputation for making timely payments, credit history, and other factors. Creditworthiness is an assessment of the likelihood of an individual's ability to repay their debts based on their past credit history.
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Importance of Building Credit
Building credit is critical, particularly for college students. Here are a few reasons why.
1. Establish Credit History - Establishing credit history early on in life is vital. By building credit early, college students can get a head start in establishing a good credit score, which can be beneficial for obtaining loans for big purchases such as cars and houses in the future.
2. Lower Interest Rates - Good credit scores are crucial when it comes to being approved for loans, credit cards, and more. With a good credit history, students can take advantage of lower interest rates on loans, saving money over time.
3. Career Prospects - Many employers now conduct background checks and credit reports for potential employees. Hence, having a good credit history can positively impact career prospects, especially if they work in the finance or banking industry.
4. Financial Stability - Building credit can also help students stay financially stable. Good credit scores can open doors for many financial opportunities such as credit cards with rewards, lower interest rates and can help justify the amount of money one earns from a lender.
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How to Build Credit
Fortunately, there are many ways students can establish and build their creditworthiness. Here are a few ways to do it:
1. Get a Credit Card: Credit Card companies offer student credit cards that can help build credit while in college. It is best to choose a credit card with no annual fees, low-interest rates, along with rewards points.
2. Pay Bills on Time: While in college, students are likely to have monthly bills. Paying them on time and in full is a great way to build a strong credit history for future loan approval.
3. Build Credit History with Small Loans: Students can start by applying for small loans or credit limits that they can pay off quickly. Prompt repayment of these loans can help build creditworthiness over time.
4. Be a Co-Signer: Being a co-signer for a friend or family member's loan or credit card can also help build credit. However, it's important to make sure the payments on the loan or credit card are always made on time.
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Building credit can seem daunting, but it is essential for financial stability over time. Early credit-building efforts can help students set the foundation for future financial success by ensuring lower interest rates on loans, access to better job opportunities, and many other benefits. It's crucial for students to understand their creditworthiness is an essential aspect of their financial life, and the earlier they start building credit, the better.
There is a lot to be gained from our free general financial aid advice, but it’s also a very individual process. If you have remaining financial aid questions, email us to discuss more or book an individual session.