Credit in College: Easy to Get, Easy to Ruin
Student loans: because debt is usually necessary
For most students, given the high cost of tuition, housing, food, and books, debt is inevitable. But some types of debt, like student loans, are less costly than others. Even though student loans require the extra step of filling out a Free Application for Federal Student Aid, or FAFSA, use them in lieu of credit cards. Student loan interest rates are almost always lower than credit cards', and they can offer more payment flexibility to low-income households.
Well-maintained student loans also look good on credit reports. Much like mortgage and car payments, student loans are installment loans, where you owe a fixed amount each month. Credit cards, on the other hand, are classified as revolving credit, which fluctuates with how much you charge. They both represent money you owe, but future lenders will look favorably on diversity in your credit line.
A warning about student loans: Although the interest on them is relatively low, this is still money that needs to be repaid eventually. If you are overextending yourself financially, you'll be more apt to default on payments after college, which is just as bad, if not worse than during school. Pulliam Weston recommends that students borrow for their education only how much they expect to make in their first year at their job. "You've got to be more realistic than most people are used to," she says.
Utilities and rent: other potential pitfalls
Sick of the dorms and ready to move off campus? A shared home, where two or three or eight people live in one house, can be a great money saver, but it can also be a hassle and hazardous to your credit. Utility and rental companies are more frequently than ever reporting your payment history to credit bureaus, and legal action such as collections or evictions will probably be reported as well.
Be wary of taking on the responsibility of paying the utilities for a shared house. Even if you are the most dependable housemate, make sure you have the financial cushion to cover the gas, cable, or water bill when a roommate doesn't pay up. Your name is the only one on the account, and your credit is the only one that suffers if you can't come up with the money.
When it comes to rent, don't think you're safe from a roommate's delinquency because you all pay the landlord with separate checks. If one roommate defaults in a joint contract and the landlord resorts to legal action (filing for eviction or a collection), then everyone with his name on the lease may end up with a black mark on his credit report.
The best way to prevent trouble is to know your roommates really well. Are they responsible and trustworthy? Even if you're sure they are, you should also draw up contracts for everything. Susan Choe, director and supervising attorney at the student housing legal clinic at Ohio State University, recommends cotenant contracts that spell out each person's responsibility. "There's nothing too small to place in a contract," she says. Choe's organization provides mostly information for Ohio residents, but it also offers sample roommate contracts at http://moritzlaw.osu.edu/shlc/ if you need a place to start. Check to see whether your school offers similar legal services.
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