How to build good credit as a student? Here are 5 key ways | Mint

As a student, managing finances can become tough sometimes. Building a credit score can help you get lowest interest rates while applying for loans. A healthy credit score also helps you get your desired credit cards with a high spending limit and exclusive deals. As a student, credit building could look like a challenge when you are beginning this process.

However, this is the best time to establish a good credit rating which will help you to have a good financial status later in your life. Let us discuss how you can kickstart your credit building journey and plan your financial independence as a student.

Apply for a student credit card

A student credit card is one of the best ways for you to create your credit history. The minimum age to apply for any credit card is 18 years old. However, some cards have a minimum age criteria of 21 years old for specific cards. If you are below 21, you might require a guarantor or proof of income.

Select a student credit card from a reputed bank and understand the fees and interest charges before applying for the card. There are even many student cards that offer relatively easier eligibility criteria than other cards in the market.

In case you are unable to get an unsecured credit card, then you may opt for a secured credit card. This would require a security deposit, which will also form your credit line.

Maintain low credit usage

You should refrain from making unnecessary purchases even though it can be convenient to utilise a credit card that provides sufficient credit for your purchases. It is important not to reach the limit on your card and not use more than 30% of the total limit.

This reflects a wise decision making habit and builds your creditworthiness. You should try to keep your purchases low profile so that you do not get tempted to exhaust your credit and use it within limits.

Use education loan wisely

An education loan is one of the best ways to start earning a credit score. Usually these loans are granted to you with a cosigner. One of the advantages of an education loan is that the amount granted to you depends on your guarantor’s financial condition.

For building a healthy credit score, you need to pay the EMIs for the loan on or before the deadline. Education loans come with grace periods which are provided to you in case you fail to repay the loan. However, you must be careful and keep a watch on when this period expires in order to prevent any undue delay in the repayment process which can impact your credit score.

Avoid co-signing for friends

Helping your friends in need is a kind gesture, However, you must avoid co-signing loans for them as this may become detrimental to your credit score. In cases where the person you have cosigned for fails to pay, or defaults, it is your score that receives the blow.

This can be very damaging especially when you are building credit for the first time because anything that goes wrong will take a long time to correct. Hence, it is better to avoid giving any aid of such sort.

Timely repayments of bills and EMIs

Timely payment of bills is very important in order to show that you are a responsible borrower. This can put a positive impact on your credit profile and boost your credit score. If you miss even one repayment, it can cause a negative impact on your credit score. Hence, make sure that you keep your repayment dates in check and be ahead of them at all times.

In conclusion, it is a wise step to start your credit journey at a young age, however, what you must keep in mind is that before you take any financial liability, always take advice from a professional and keep your finances in line and go for a loan only when you really require it. With this you will not only make informed decisions but also will be able to build a strong foundation for your future credit worthiness.