How to Start Building Credit in College
Building credit is something most college students know they need to do. Establishing a credit history and having good credit are musts for becoming financially independent – without it, it can be very difficult to qualify for loans, rent an apartment, and even get certain jobs – but knowing where to start can be confusing. We break down some simple strategies on how to start building credit below.
How do you build credit?
Become an authorized user on your parents’ credit card account
Simply put, being an authorized user on your parents’ account basically means you’re using their credit card, but you have your own card with your name on it. When you’re building credit, this the best of both worlds. You can buy things on the card like it’s yours, but it’s still the primary cardholder’s legal responsibility to pay for the charges. You might have to pay your parents back, but hey, you’ve got plastic!
As long as your parents maintain a good credit history by making on-time payments without carrying a large balance, your credit report will get a boost. The credit card company should report the account activity to both your and your parents’ credit profiles, but you can always check first to see if the credit card company reports authorized user accounts to credit reporting agencies.
Apply for a secured credit card
If you know you’ll always be able to pay off the balance every month, think about applying to get your own secured credit card. A secured credit card requires you to put down a cash deposit (usually equal to the same amount as your credit limit on the card) to open an account, reducing risk to the credit card company. Like being an authorized user on someone else’s credit card, this is a good way to build credit, and the required deposit makes it easier for people with a short credit history (or bad credit) to open an account.
A good tactic when getting your first credit card is to use it only for small purchases (like gas or your Netflix subscription), then pay the balance off in full every month. Avoid the urge to splurge to prevent your credit balance from ballooning to an amount you can’t afford to pay back.
Credit cards aren’t one size fits all, so make sure you do your research before you apply for one. Things like annual fees, interest rates, and credit limits can vary from card to card. It’s important to know what you’re getting into before you sign up.
Apply for a student loan
As a college student, you might already have student loans, and the good news is, they’re helping you build credit! Any student loans you’ve borrowed, whether federal or private (even if you have a cosigner), are reported on your credit report when they’re taken out.
Keep your student loan balance as low as possible to make it easier to make on-time payments on it in the future. This will help you build credit history without getting into debt you can’t manage.
Stay on top of your student loan payments
Missing student loan payments can have a big negative impact on your credit score. Don’t just rely on your loan servicers to remind you when you need to pay your student loans. Set reminders each month to make your payment on time, or set up an auto-debit to minimize the worry. (Bonus: Many private lenders offer a discount on your APR if you sign up for auto-debit.) If you know you’re going to have trouble making a payment, contact your loan provider. Chances are, they’ll be willing to work with you if you reach out beforehand to let them know of the problem. After you miss a payment or two? Not so much.
NOTE: You don’t have to wait until you have to start paying off your student loans to make payments. If you can, start paying off your student loans while you’re still in school to minimize debt after graduation. Even if you’re only making interest payments, it can make a big difference in the amount you have to pay later!
Pay your bills on time
Credits cards and student loans aren’t the only things that affect your credit. Even things like cell phone bills, paying your rent, and utility payments can be reported to a credit reporting company. Always pay your bills on time to prevent a missed payment from hurting your credit.
Don’t apply for too many accounts at once
It may seem like a good thing to do when you’re trying to build credit, but credit inquiries (where companies ask a credit reporting agency for your credit report after you submit an application) can lower your credit score, especially if you have multiple inquiries in a short amount of time. People with short credit histories can especially be seen as riskier borrowers because they don’t have a long track record of paying off their debt. Keeping your number of credit accounts low shows credit reporting companies that you are a responsible borrower, and using the accounts you do have wisely will help build a positive credit history.
Dos and Don’ts of Building Credit in College
The bottom line is, managing money responsibly, making payments on time, and keeping balances low are key to building good credit. Here are some dos and don’ts to keep in mind.
- DO start building credit early
- DON’T get a credit card if you can’t pay it off in full—and on time— every month
- DO keep your student loan balance as low as possible
- DON’T miss any loan payments
- DO pay your bills on time (including rent, utilities, cell phone bills, etc.)
- DON’T try to open a lot of accounts at once
What to do next?
Private Student Loans vs. Direct Stafford Loans
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Up to four repayment types (including no payments while in school) and multiple repayment terms help you find the loan that fits your budget
Payments based on a fixed percentage of future income for up to 60 months after graduation
Only pay when earning more than the $30,000 minimum income threshold.
Payments stop early if you ever hit the payment cap (2.0x your initial funding amount)
Payments based on a fixed percentage of future income.
Lower (or no) payments when you're unemployed or underemployed.