Students should begin building credit sooner rather than later to ensure better financial opportunities further down the line, according to University of Connecticut finance professor Katherine Pancak.
“Credit determines a person’s ability to borrow in the future and what interest rate they can borrow from,” Pancak said. “When a person wants to apply for a credit card or get a phone plan, a person’s credit will be checked. The same applies for buying or leasing a car. You are going to have to have a good credit score in order for them to allow you to drive away with a car and pay later.”
Pancak explained that most lenders look at a FICO score when assessing a potential client. A FICO score is contrived of data credit bureaus keep on file and is determined by 35 percent payment history, 30 percent what an individual owns, 15 percent length of credit history, 10 percent new credit and 10 percent mixed credit, according to the FICO website.
Students should start establishing credit early in order to maintain a good score, Pancak said.
“Length of credit history... is 15 percent how long (a credit line has) been open and active for, so that’s why it’s important to start by age 21,” Pancak said.
Hussan Othman, sixth-semester biology major, started building credit before the age of 21. Othman said that even though he is not worrying about his credit prior to graduation, he is still conscious about devising ways to maintain his score.
“Pay your full balance and don’t keep a credit on your account,” Othman said. “Use the [bank’s] app too to check up on it.”
Othman said that his Discover credit card provides a plethora of functions that, like an online banking app, are suitable for college students. Some notable benefits provided to students include $20 cashback for every year a student’s GPA is 3.0 or higher, few qualifications necessary to apply, no late fee on the first late payment and an ability to pay bills online or on the phone, according to the Discovery website.
Bank of America advertises their own student credit card. It offers educational resources regarding credit and budgeting, the bank’s lowest annual percentage rate and free access to a monthly updated FICO score, according to their website.
Student should assess their options before applying, Pancak said.
“I want students to shop around for credit cards. Credit cards have different rates of interest and some have annual fees,” Pancak said. “Start reading about their rates and fees now. Bankrate.com is a good resource.”
Alongside an extensive background check for potential credit cards, Pancak said that understanding budget is another necessity for successful personal finances.
“Learn how to budget” Pancak said. “Learn how to save and eventually learn how to invest. Learn how to make your own coffee and cook at home. Because those Starbucks coffees add up to a lot of money. Save money and invest.”
Lillian Whittaker is a campus correspondent for The Daily Campus. She can be reached via email at email@example.com.