Building credit can be a daunting task for individuals of any age—let alone students. With back-to-school season upon us, there’s no doubt that parents around the nation are sitting down with their high school and college-aged kids to have “The Budget Talk,” especially if they’re going away to university for the first time.
It’s safe to say that between their homework, courses, extracurriculars, and social lives, most students aren’t thinking about credit—or at least, it’s not high on the priority list. But college can be an ideal time to start building credit for the long run, if it’s approached in the correct way.
And building credit without a credit card can often present challenges. With that in mind, I chatted with two experts from Academy Bank and Armed Forces Bank to explore a common offering from most credit card issuers and only a handful of financial institutions: the secured credit card.
Getting started with a secured credit card
A secured credit card can be an incredibly useful product for new credit-builders.
A secured credit card’s spending limit is capped at a specific credit limit, usually an amount under $3,000. Because of this, many people associate a secured card with someone trying to limit their spending in order to dig themselves out of a debt hole.
However, I sat down with two experts on Academy Bank’s secured card product, Credit Builder—John Baeuchle from Armed Forces Bank (Executive Vice President and Director of Military Banking) and Gerry Clemen, Academy Bank’s Director of In-Store Banking—and they both enthusiastically agreed that Credit Builder is ideal for young adults trying to build credit for the first time.
Baeuchle, whose niece used a secured credit card throughout her college years, says the product was “incredibly valuable” for his family.
“Most people at 18 or 19 don’t have a credit score, or a way to start building credit,” Baeuchle explained. “This product is great for a student who’s trying to get started.
“We try to encourage students to buy gas, or something small that can be easily paid off each month; in doing this, students should see their credit score go up over time. When my niece used a secured card, she had a safety net through the $500 limit—we knew she’d never go crazy in debt. When she hit her senior year, she had a great credit score, plus we can easily convert the card from secured to unsecured at any time as long as it’s paid off.”
Additionally, Baeuchle told me, the Credit Builder product requires a minimal $300 deposit to open and can be established at an amount to meet each client's needs.
“You can make yourself very independent and self-sufficient, and you can really start building a credit history with this,” he said.
Optimizing Credit Builder
When I spoke with Gerry Clemen from Academy, he also praised Credit Builder as a hidden gem of smart spending.
“I have repeatedly over the years heard a tremendous number of testimonials from clients and associates on how [Credit Builder] has helped them establish or reestablish credit,” Clemen said. “We’ve heard stories of how it’s allowed people that didn’t think they could ever purchase a new car or a new home to receive the opportunity to do things they didn’t think were possible--at a competitively low interest rate.”
For the non-experts in credit building (such as myself), Clemen took the time to detail some of the assets that make Credit Builder ideal.
“First, our secured card product allows clients to get credit reestablished at a very low minimum open balance at $300,” he said. “It also allows our clients to add to that in an increment of $50 or more at any time so they can grow their credit line to meet their needs—it gives flexibility to our clients.
“We’ll also increase their credit line, dollar for dollar, with whatever balance exists in the credit card’s savings account. That’s unique, that we give our clients 100 percent credit for every dollar on deposit.”
“Lastly, we report to all three major credit bureaus each month so that our clients’ payment records get reported on a very timely basis.” (This helps build credit history.)
Clemen added that the most important thing is making sure that clients are paying off their balance and minimums on a timely basis. For that, setting up automatic payments can be a lifesaver.
As for advice to students and young folks building credit the first time, Baeuchle and Clemen concurred: don’t forget to pay your monthly statements.
Make those payments on time and you're well on the way to establishing a good credit history.
-- Claire Martin