Credit restoration may look like a problem of adults only. However, it is wise to start doing this now because you will have a huge advantage in the future. Picture yourself your credit score being the same as GPA but in respect to your financial situation. The perfect way to solve this problem and fix your credit score is getting a secured credit card. Just as any other card, it requires depositing cash first.
Now let me explain you what happens when you put the required sum of money into the bank. In return, for depositing, for example, $200, the bank sets your credit limit at the level of $200. You can think of this sum as of your insurance that you will pay back the money you have spent.
It looks weird, but it is the evidence of your responsibility. There are many good options for students including Discover it Secured Card and Capital One Platinum Secured cards. These types of credit cards give the best terms of service, which include the absence of fee and cash back match.
Now that you have your credit card, use it as a debit card. Purchase things that you can afford paying for. Subscription in Spotify and a couple of gasoline tanks is enough. Even though it may be really tempting to buy the newest video games or clothes that you cannot yet afford. The point is not having a high balance, but showing low.
The main point is paying back the amount of your credit card fully before the due date of your statement. Missing even one monthly payment will make your score fall very sharply. Do not be fooled by the minimum payment that costs you interest. You can set up the automatic payment system through your bank app to avoid missing anything important.
Do not let your credit utilization rate to be high – it means spending more than 30% of your credit limit. That is, if your limit is $200, then your spending shall not exceed $60 in one statement period. It will show banks that you do not rely on the possibility of borrowing.
After six months of good payment history, your credit score starts increasing. After that, you may get issued an unsecured credit card and receive back your cash deposit. Congratulations, you have successfully graduated.