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One of my biggest long-term financial goals for the past 2 years was to build my credit for a new car, so I wanted to share my credit repair tips with my student readers as this may be a common goal for many. After graduating college, students entering the next phase of adulthood are likely planning to make big purchases such as new cars or homes. However, with student loan debt under one’s belt, don’t these tasks become harder?
Any large purchase that typically involves financing requires the buyer to qualify with a minimum FICO score. Your FICO score – calculated by Fair Isaac Corporation – is calculated using a scoring system that analyzes your credit information across Equifax, Experian, and TransUnion to calculate your lending risk. Generally speaking, the lower your score, the lower your odds are of qualifying for that mortgage loan or car loan and get out from under Mom and Dad’s wings.
While student loans are generally considered “installment loans” and are not typically analyzed like revolving credit (ie. credit cards) by FICO, student loans still have the potential to ruin your credit before you ever get the chance to establish your credit history.
Think about it: many college students and graduates may be juggling a number of monthly bills with a limited income: phone bills, rent, car payments, as well as basic necessities like food and gas must somehow be accounted for. With things like credit card payments and student loans, how is it even possible to stretch that budget to cover everything? It seems inevitable that anyone could eventually miss a credit card or loan payment, leading to a plummeting credit score.
So what does that mean for graduates fresh out of college with enormous student loans and credit cards to pay off? What are your options?
Employ Strict Savings Strategies
This might take some time to master, but simple lifestyle changes such as less trips to Starbucks, more cooking at home, buying used items instead of new and sharing an apartment with other students can help you save money in different areas. Although savings does not make a direct impact on your credit score, having more liquid cash can prevent using credit cards as your main payment method.
Always Monitor Your Credit
Stay vigilant with your credit monitoring and you can prevent any incorrect marks against your credit, such as incorrect late payments. Last year, upon checking my credit I saw there was a missing payment from 3 months ago but I’d paid it on time, so I called the creditor and disputed it. It was removed from my credit report, and all was back to normal.
Acts such as The Fair Credit Reporting Act (FCRA) give you the right to dispute such inaccurate items with the credit bureaus and individual creditors. If you feel this may be a challenge, Lexington Law Firm can also help you fix such credit errors: they have long-standing relationships with all three credit bureaus, and these relationships allow them correct credit errors efficiently all while teaching you how to build your credit.
Pay Your Bills on Time
Whether it’s your monthly rent, credit cards, or student loans, it’s extremely important to make a payment each month. According to Student Loan Hero, late payments on student loans can impact 35% of your credit score! They can also stay on your report for up to seven years, which can jeopardize your chances of qualifying for other loans in the future.
On the plus side, since student loan payments are reported to your credit bureaus, paying on time can actually help your credit score.
If you struggle with making payments, try using Dave Ramsey’s debt snowball method: each month, pay only the minimum on all your credit cards except for the one with the lowest balance. If you make bigger payments on this particular debt, you can get rid of it faster and then repeat it with your other debts until they’re all paid off. I used this exact strategy to pay off 2 credit cards fairly quickly last year!
Avoid Credit Card Usage
If you’re already great at budgeting, then you’re one step ahead of those struggling to wean themselves off credit cards. No matter what the case, you should minimize credit card spending and refrain from opening up any other lines of credit. Last year, my New Year’s resolution was to not touch a single credit card for the entire year, which allowed me to pay off 2 credit cards and raise my credit score by a few points.
Don’t Be Afraid to Seek Out Credit Repair
When people think about financial advice, it’s often believed to be an expensive service. However, the credit repair industry has grown tremendously in recent years, which means credit repair is now much more affordable, especially with Lexington Law Firm. Packages start at just $24.95 per month, making credit repair affordable for many college students.
What are your credit building and credit repair goals? Do you have any stories to share? Let’s chat in the comments below! Don’t forget to subscribe to my newsletter and follow me on Instagram for more money-saving tips and tricks.
More Budgeting and Personal Finance Posts:
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- The Most Useful Credit Repair Tips Every College Student Needs
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