The last thing you worry about when you are in college is your credit, and unfortunately that means when you join the workforce and get ready to start living, you start realizing why that was probably one of the worst things you could have neglected.
There is no reason for me to remind you of the importance of credit if you live in the United States, everything from your house, cars to your student loans is dependent upon your credit, especially in the earlier phases of your life as you build up your empire of financial independence. Remember that credit is always available when you need it the least and almost always difficult to get when your finances depend on it which is why being proactive with it is very important.
While you are in college, there are a few things you should do to boost your credit, and in most cases even get it over the 800+ tier.
Manipulation of Balances
Everyone knows that maxed out credit cards have a huge negative impact on your credit, but yet very few people realize the importance of manipulating their balances for an optimum credit score. While utilization of credit accounts for 30% of the FICO score, it can easily be manipulated to your advantage prior to applying for a loan, which will bring out your credit score.
All you have to do is know these two numbers: 30% and 50%.
Every line of credit or credit card you have, must have less than 30% in revolving balances for the best possible utilization and 50% at the most if faced with a dire situation. It is always better to split balances across multiple cards in order to stay below those numbers.
Remember that your credit score changes almost every single time it is pulled, so be conscious of this before pulling your credit at least 30 days in advance, to ensure you are as optimized as possible with getting the highest credit score.
Open Credit is NOT a Bad Thing
While you hear the media always talking about how having too many credit cards is a bad thing, it certainly isn’t always the case and the word too many is often not correctly defined. You may simply use two credit cards on average like every one else, but having 4-5 total cards will help you tremendously, even if not used on a daily basis.
When you are applying for credit and someone pulls your score, it is very helpful to show you have available credit lines open that show availability to real credit in case of emergency. While most people usually only have credit cards they use, many do not have back up credit cards or even any types of cards to use if just in case.
Staying away from department store cards is certainly a plus but having two lines of credit to help back you up can help boost your score as well as make you look more desirable to a lender.
A mistake most parents make to help their kids build credit is they co-sign for them on new loans and new credit cards when in reality they would do you a bigger favor if they actually understood how authorized users being added worked, as highlighted below.
A loophole that has never been addressed is the authorized user trick.
You can simply be added to a credit card and yet never be given access to that credit at all, with the emphasis to help boost your credit.
Here is how simple this trick is. Find a relative or close friend who has a credit card they have used forever and have used well or properly, then ask them to add you as an authorized user. By doing so, and not even using it, you will be given the entire log of credit history and associated points that come with it immediately.
So even though you might be 18 and have no credit experience, if that card is 8 years old, you could have an 800 credit score and show 8 years of credit history. This small trick can help tremendously when getting loans especially at an early age.
In conclusion, remember that your FICO score is nothing more than algorithm that tells a lender the probability that you will default on the credit you are applying for in the next 90 days. While most look at the score as a definition of who they are, it is more a measure of your credit worthiness at that very moment it is pulled and is ever changing. I hope you learned something new about credit and look forward to helping more people get to a better financial state.
Michael Morgan is an Entrepreneur, Credit Expert, and all around nice guy. Bringing over 10 years of credit experience, he is the co founder of the powerful credit optimization platform www.quickcreditboost.com. Find out more about Michael at www.Michaelemorgan.com