This is a series of articles brought to you by the executive board of the Boston College chapter of Smart Woman Securities (SWS). Â SWS is a national investment education organization for undergraduate women. Â Through instructive seminars, mentoring initiatives, and meetings with successful investors, SWS provides resources upon which women can build greater knowledge of personal finance topics and the financial markets. Â For more information visit us online, follow us on Twitter, or send us an email.
Think of yourself as a major investment bank for a moment: BC Collegiette™& Co.  You’ve got a client whose retail company is in a bit of a financial black hole.  Due to their past mishaps of selling imitation Uggs and leather chaps, they are operating at heavy losses and low cash reserves.  Their financial statements show a history of out-of-season loans, low sales revenue, and no feasible plan for paying the money back without borrowing more money.  In an effort to obtain fresh and desirable styles, they have come to you to ask for help in raising money to hire new designers, promising that this move will increase sales.  Given this retail company’s history of bad debt, would you give them more money, knowing you’re not very likely to get it back?  Probably not.
There may be several problems with your client’s operations that led the company in to such a rut, the most obvious being poor management of debt and unwise spending.  Because of this shaky history, they are unlikely to get secure the additional funding they need and may eventually need to file for bankruptcy.  As a college student, you are very much like a company in its early stages of growth.  How you handle money that you receive during these early years will determine how much money, if any, banks are willing to lend you when you’re in need in the future.  Credit, the ability to buy now and pay later, can be secured through a creditor.  One of the biggest factors creditors look at when you apply for credit is your credit score, which is basically a financial grade that measures your money management skills.  Though it’s practically impossible to secure a perfect score, here are some tips on how to establish and work on increasing your credit score as a student:
Open a credit card account.  New credit card legislation has made it close to impossible for anyone under 21 to open their own credit card account without an adult co-signer.  This is why many people who are underage become authorized users on their parent’s credit card accounts.  If your parents have a good credit score it can help boost your fledgling credit history, and give you a chance to practice healthy credit card habits in preparation for eventually opening your own card. Once you are 21, use sites like http://www.bankrate.com/ to evaluate credit card offers.  Look out for annual fees, penalties for late or missed payments, the annual percentage rate, and other terms and conditions laid out in the fine print.
Treat credit as cash.  Once you start using a credit card, it is important to never spend more than what you actually have sitting in the bank.  Yes, we know it an be tempting to go on a  J.Crew shopping spree when you know you won’t have to pay for it for at least a month, but when you stop paying your credit card payments in full your credit card debt will start to rack up.  Payment history (how long past due are your payments? how much money is past due? how many accounts are past due?) is one of the biggest factors that determines your credit score.  At the same time, your credit score is impacted by the utilization of your credit card so it’s important to actually use your card and be able to pay off your balances in a timely fashion.  When you’re starting out we recommend you choose one thing, like groceries, to buy with your credit card every month.  When you’ve gotten into the habit of consistently paying your bill on time and in full, you can start to think about charging other more irregular expenses to your card.
Pay off loans and bills quickly and timely.  Another factor that affects your credit score is the types of credit you have used and whether you have proven yourself in many different areas.  Loans, including financial aid for schooling, are one of these areas.  Many college students have some form of financial aid, usually in the form of federal and state loans.  While you are in college, these loans are interest-free.  After you graduate there is usually a several month grace period before you have to start making loan payments, but once they come due they will begin accumulating at healthy rate of interest.  It’s never too soon to start projecting how much money you will need to have saved to start making those payments as soon as they begin.  Ideally, you will graduate with total debt less than your expected starting salary.  Budget your money wisely in your post-college or post-grad school years so that you can pay off your student loans as quickly as possible.  What you absolutely don’t want is to accumulate credit card debt on top of your student loan debt, or to still be paying off your own student loans when your children are heading to college.  If you are prudent about how you spend your income and make paying off your debt a top priorities, this shouldn’t be a problem.
“Live like a college student, not like a rock star.” The number one money tip from financial advisors to college students.  It is easy to not take credit cards and saving seriously when you’ve gotten used to having your parents pay for everything, but that source of funds won’t be there forever.  It shouldn’t be there forever.  The privilege of freedom that you have as an adult requires you to behave like one.  With the discipline and practice of creating a budget, spending less than you have, saving money, and prioritizing, you are building skills that you will carry with you throughout life.
Keep track of your loans, bills, and credit cards.  As college students, it is important to keep a detailed record not only of your monthly income and expenses, but also of your student loans, bills, and credit card statements so that you can keep track of what you owe, and determine how and when you’ll pay it back.  It will also help you incorporate paying back what you owe into your monthly budget.  Since there is little need for college students to own more than one credit card, it should be easy to keep tabs on how much you’re using.
We’ve talked the talk and now we’ll walk the walk.  Over the course of our blog series, we’ve walked step-by-step through the processes of budgeting, saving, investing, and establishing credit. In our next blog installment, SWS E-board members will share their own personal finance habits and tips.  We promise we really do practice what we preach!
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Photo Sources:
http://www.post-gazette.com/pg/09044/948786-120.stm
http://www.maggieroseonline.com/2009/02/17/seen-confessions-of-a-shopaholic/