Secrets to Establishing and Keeping Good Credit
As parents send their kids off to college in the coming months, many of them will be wondering if it will be the last time their children will be living under their roofs.
According to a study conducted by Twenty something Inc., a consultant firm specializing in young adults, 85 percent of the class of 2011 will wind up moving back in with mom and dad once they get their degrees.
The reason for this is a combination of a shrinking entry level job market and crushing college loan debt.
“The average student accumulates over $ 23,000 in student loan debt and $ 4,000 in credit card debt during their years as an undergraduate student.” – Gabe Albarian college student
Albarian avoided credit crisis during his college years by following the advice he offers in “Financial Swagger”, a guide for young people who want to escape the pitfalls of credit disaster.
Albarian has a few tips aimed specifically at helping those who are just entering college or about to graduate establish and keep a good credit rating:
- New Credit Cards – Credit card companies love to hammer new students and new graduates with seemingly generous offers of unsecured credit cards. Don’t take the bait. There are other ways to establish credit without opening yourself up to the slippery slope of introductory interest rates that change after 6 months or the temptation to use that credit to live above your means.
- Authorized Users – If your parents are financially responsible (not always the case sometimes) and pay their bills on time every month, I suggest that you be added as an authorized user on their credit card. Make sure to provide your personal information and social security number to the credit card company so that your credit history report will reflect transactions performed on this account. In about six months, after you’ve learned with the authorized user training wheels how to manage your credit reliably and maintained a responsible payment history, you will receive your own credit card offers.
- Secured Credit Card – The temptation will be to apply for an unsecured credit card, but that’s still not wise or necessary to establish good credit and good habits. Instead, apply for a secured credit card at your local bank. With a secured credit card, you place a nominal amount of money in a savings account that cannot be withdrawn as it is used as recourse to pay back your debts in case you do not pay them yourself. In essence, your spending limit on your secured card is exactly the amount you place in the linked savings account – hence, your debt is secured by the money in your account. Just like a normal credit card, you will receive a monthly statement to pay off a portion or all of your debts but meanwhile your payment history will be reported to the credit bureaus. Within months you will receive offers for other unsecured credit cards. It’s not necessary to have more credit cards than you need, because not only will it present temptation, but it may also lower your credit rating.