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Whether it's their first or last year of college, today's students are busy trying to prioritize school work, social life and how to manage the "new normal" as the fall semester begins.
Through it all, finances are an essential part in college students' lives — both while at school and after they graduate. But with so many competing priorities, it's far too easy for college students to overlook the importance of credit until it's too late.
Life after graduation includes many firsts, including leasing an apartment, financing a first car and getting a job. "New normal" or not, potential employers and lenders like to see a history of credit. To kick-start a stable financial foundation upon graduation, college students should start focusing on their credit now.
Because this takes time, Tayne shares seven tips on how to begin the credit-building process early on.
The first step is to understand where your credit stands and what your credit profile looks like. To do this, you can pull your credit report for free from each of the three major credit bureaus — Experian, Equifax and TransUnion — by going to AnnualCreditReport.com.
You'll also want to know what affects your credit score, such as making timely payments on your student loans and/or other payment plans, such as for a cell phone. Credit scores range from 300 (bad) to 850 (excellent) and you can check your score for free through services like CreditWise® from Capital One and Chase Credit Journey.
CNBC Select ranked the best credit cards for college students and two that made the list include the Citi Rewards+℠ Student Card for rounding up points on small purchases and rewarding students for shopping at supermarkets, as well as the Deserve® EDU Mastercard for Students for allowing international students with no credit history to apply.
Note that the Credit CARD Act of 2009 states that anyone under 21 must show income or have a co-signer to get a credit card, and not all issuers allow co-signing.
If you can't get your own credit card, consider being added as an authorized user to one of your parents' credit card accounts, or someone in your family with good credit. (Learn more about being an authorized user on a credit card.)
To use your credit card wisely, know what to look out for before applying and using your card. A couple of good practices for newbies include shopping around for the lowest interest rates and no fees, as well as thinking twice before closing your oldest credit card.
Before opening your own credit card, be sure to understand what it will do to your credit. Each time you apply for credit, a hard inquiry is listed on the credit report(s) that were pulled by the lender. This will ding your credit score a few points temporarily. Thus, you want to limit how many cards you apply for at once.
"Ideally, as a young person, you don't need more than one or two," Tayne says. "Any more is simply unnecessary."
Tayne recommends downloading your credit card's mobile app so you have on-the-go access to review your accounts and set up alerts for when your card is charged.
"There are so many credit cards on the market that it can be difficult to determine which is the best suited to your needs, especially when you're first building credit," Tayne says.
Her suggestion for college students is to avoid cards with annual fees as they typically require a high amount of spending to make up for the added cost of offering top rewards like annual travel credits. "Therefore, they're generally not well suited for young people without an established income," she says.
As a beginner to credit, also be wary of rewards credit cards in general. Know that you have to pay your credit card balance off in full each month to really earn the value of the rewards offered; otherwise, the rewards are negated by what you owe in interest.
And with any credit card, pay attention to the interest rates. Credit cards are known for their notoriously high interest rates if you ever carry a balance month to month.
"While you want to avoid carrying a balance, having a high interest rate can make your debt spiral out of control quickly if you do have a time where you are unable to pay your balance in full," Tayne says.
Your payment history is the most important factor determining your credit score. To ensure you pay your credit card balances (or other bills like student loans) on time, automate your monthly bills so that the money is withdrawn from your bank and you never pay late or miss a payment.
"Setting up autopay is an excellent idea, even if it's for the minimum payment each month," Tayne says. "You can then make additional manual payments each month."
With credit cards, missing payments can add up to be quite costly in both late fees (which increased to $40 this year) and a potential penalty interest rate, as well as cause a dip in your credit score. "Rebuilding your score takes much longer than damaging it," Tayne says.
CNBC Select recommends paying your credit card balances off in full each month so you don't incur interest, but automating your bills for at least the minimum is a good first step to never being late.
The secret to using a credit card effectively is to never spend more than you can afford to pay back when the bill arrives that month.
"Treat your credit card the same as your debit card," Tayne says. This means acting like you can't spend more than what's in your bank account.
When you charge a bunch of expenses onto your credit card that then go unpaid because you can't afford to pay them off, you run up a high balance that incurs interest on top of it and you also use up too much of your credit limit. This will cause an uptick in your credit utilization rate — a ratio showing how much of your available credit you use — and a decrease in your credit score since the amounts you owe are the second biggest factor.
Experts recommend maintaining a low credit utilization rate (under 10%) for the best credit score. "The more credit you're using, the riskier you'll appear to lenders and the lower your score," Tayne says.
In addition to credit card bills, on-time bill payments for services like monthly utilities and cell phone bills can also help improve your credit score.
By using Experian Boost, users can connect their bank account(s) so it can identify your payment history on certain bills. After verifying the data, you can add these payments to your Experian credit file and receive updated FICO credit scores delivered to you in real time.
As of recently, you can even add the monthly subscription you pay for Netflix to your Experian Boost account.
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- What to do if you have no credit after college
- Take control of your financial future with these top 5 cards for recent college grads
Information about the Citi Rewards+℠ Student Card has been collected independently by CNBC and has not been reviewed or provided by the issuers prior to publication.