First Person: How College Students Can Safely Build Credit

Your credit score is important. The score tells lenders how well you manage a loan, which influences your ability to obtain student loans, credit cards, car loans, mortgage and rent. While some parents insist that their child never gets a credit while in college, there are ways to manage credit wisely without credit cards and with credit cards in the hands of a responsible student. As someone who graduated college recently with a good credit score, these are my secrets to managing responsible credit.

Credit Cards: Good for some students

Credit cards, like other forms of interest bearing money, are great in the hands of responsible and mature students. Credit cards are good in the sense that they offer rewards in the form of items and cash for responsible credit. Any student who considers a credit card should ask the creditor to lower their limit to something small, such as $500. A college student considering a credit card should have a job that allows them to pay at least the minimum payment. Paying the full balance every month means you don't have to pay interest, you build your credit and you get rewards. However, students who have not matured should not get a credit card until they learn how to handle money. Never co-sign for your child's credit card because if they are irresponsible your credit score will be affected by their negligence.

Student Loans: Consider the amount before borrowing

In today's economy where nearly every job requires a college degree, it can lead high school students to consider going to the top private school to get the very best job. However, for most students, going to private school rather than state school is very costly. Students should consider community college for two-years, or state school if they are the ones paying for school. Your student loan bills will be lower than if you go to private school and will not affect your credit score as much. Having high student loan bills make it hard to obtain a mortgage, car and even a credit card. Don't ruin your credit score in order to an expensive college. Make your child attend a student loan class before obtaining any college loans. This way they know exactly what kind of job they will need in order to pay their bills back. From experience, $50,000 to a high school senior does not seem like a lot, but to a college senior it seems like a mountain of debt.

Purchasing a Car: New vs. used

First and second year college students rarely need a vehicle if they live on campus or near campus. However, as third and fourth year students consider internships and jobs they will need a vehicle. In college I started my own business and purchased a brand new luxury car my senior year. However, most students will not have enough money to do the same. Any type of car loan, whether that is $50,000 or $5,000, will build your credit score. Make sure you can afford the monthly payments. I actually set aside a yearly emergency fund in case I lost my income to cover my car expenses so I would not damage my credit score. Due to the large loan amount on a new or used car, your credit score will build over time if you successfully pay each month on time. Like any other loan, if you fail to pay on time your credit score will decrease.

Cell Phone: Should your child pay for it?

My career as an economist took root while I was in college. My parents made me pay for everything, including clothes, cell phone, college and my car. Because I held this responsibility, I was able to make more than my classmates and learn the value of money. Almost every friend I had in college had their cell phone paid for by their parents. However, with cell phone bills nearing $100/month or more, it is important to make your child pay the bill if they want anything more than a basic phone. This will help them build their credit and make them consider if they really need a $50 data/texting plan. They will quickly learn the value of money when they realize their iPhone 4 actually costs $130/month, which is more than they make with their on-campus job.