Why credit matters

Female student in class

Learn some basics about why credit is important.

With so many payment options available, why is credit so important? If you know how to manage your credit responsibly, you can feel confident about your credit scores, building credit, and credit histories.

Let’s start with the basics. Why build credit to begin with?

Even though 58% of soon-to-be college graduates indicating that they have a credit card, today’s college students are more likely to pay using cash or debit instead of a credit card. What these students are missing is that responsible use of credit can give you more options down the road. Credit is important as you think about life after college – from getting a job, to renting your own apartment. Employers and landlords may check your credit to ensure that you have a history of managing your finances responsibly. For aspiring homeowners, it’s difficult to secure a mortgage without substantial credit history.

How can a college student build credit?

There are many ways to build credit, but one way to start while you are still in college is by using a credit card. Debit cards and prepaid cards are useful budgeting tools, but do not help you establish a credit history. If you start now, you’ll have more time to build a credit history, and more importantly, learn critical lessons on how to manage your credit.

Which leads us to the next important question: how do you manage credit?

First, you’ll want to familiarize yourself with what a credit score is. Your credit score will be used by lenders to make credit decisions, and is calculated is based on the following factors:

Graph of Credit Score componenets: 35% Payment history; 30% Current loan and credit card debt; 15% Length of credit history; 10% Types of credit; 10% New creditThe biggest and most important component of your credit score is related to payment history. This captures whether you make payments on time, how often you miss payments, how many days past the due date you pay your bills, and how recently payments have been missed. Every time you miss a payment, it impacts your score.  Learn more about the other factors here: https://www.wellsfargo.com/financial-education/credit-management/calculate-credit-score/

Once you’ve developed a solid understanding of your credit score, here are a few tips that can help you build good credit.

  • Charge only what you can afford. Avoid overextending yourself financially by setting a budget and living within your means.
  • Keep your balances low, relative to your credit limit. Being close to or maxing out the limits on your credit card(s) may impact your credit score.
  • Pay on time, every time. Missed or late payments show up on your credit report. This applies to loans, credit cards, and other credit products.
  • Pay more than the minimum each month, if possible. Keep overall balances down and reduce interest paid by making payments above the monthly minimum.

Wells Fargo’s Path to Good Credit offers a credit education resource with helpful tips, information, and interactive quizzes to help you learn more about establishing good credit and how it can help you achieve your financial goals.

Once you’ve developed a good understanding of why credit is important and how to build credit, you may be interested in starting your credit journey. Wells Fargo offers a credit card solution for college students look to build credit while still in school with the Wells Fargo Cash Back CollegeSM Card. Check with your bank to see if they offer something similar.

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