Credit in college: Protecting your credit score

Just having a credit card does not at all guarantee that you’ll graduate with good credit. Once you have a card in your own name, it is critically important that you use it wisely so you don’t damage your credit score. We’ll share some tips on how to use your new credit card as a financial tool to help build your future financial life.

Pay on time, every time 

As mentioned in part one of this series, the most important factor in your credit score is paying your bills on time, and this is even more critical with credit cards. If you don’t pay your credit card bill responsibly, the credit card company won’t raise your credit limit or offer you a better card. Plus, it’s less likely that you’ll be approved for any other credit cards. Set up a reminder of your bill due dates on your calendar and pay on time, every month. It’s best to pay your entire balance, but at a minimum, you MUST pay the minimum payment amount or you’ll really wreck your credit.

Use the card, but don’t overuse it 

Simply having the card in your wallet doesn’t do your credit score all that much good. To build a solid credit history, you need to use the card for purchases, then pay it off on time, every time (see #1). Don’t use this “use the card” advice as a rationalization to go out and charge like crazy, but do try to use your card regularly. A great start might be a small, recurring expense like a health club fee or Netflix account.

We recommend using a small recurring charge because you never want to come close to maxing out your credit card. Why? The second biggest factor in your credit score is your “credit utilization.” That’s the percentage of your credit that you are using. For example, if you have a $500-limit credit card and you charge $250, your credit utilization is 50%. Any score over 30% will negatively affect your credit score, so do your best to keep your utilization number well below that threshold. Don’t panic, though, if a car repair or other big expense pushes you past 30%; just pay the balance down as quickly as you can, and try to avoid applying for any other credit or loans while your utilization score is high. 

Don’t go crazy with applications

Don’t fall into the trap of immediately applying for more credit cards after you’ve gotten that first card and started to establish your credit history. If you apply for too many cards or loans too quickly, you’ll be seen as a bad credit risk. Be patient while you watch your credit score improve. If you’ve been managing your money effectively for a while and not carrying a balance on your card, after a year or two of usage and ontime payments, you might consider applying for a rewards card so you'll earn rewards on your spending. 
 

Having a good credit score when you graduate college can pay off in many ways. Employers run credit checks on job applicants, and landlords often run them before they’ll rent you that first apartment. A good credit score will get you a better rate on your auto loan when it’s time to buy a car, too. So once you get your credit card(s), use them smartly!