How to Build Credit in College: 7 Essential Tips for Students
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- Good credit helps students rent apartments and even qualify for jobs.
- College students can build credit with several types of credit cards.
- Making payments on student loans also helps build credit.
- Students should check their credit report to avoid credit problems.
Good credit helps college students rent apartments, qualify for car loans, and even land jobs. But how can you build credit in college? And why does building credit matter?
Credit is your ability to borrow money. College students rely on credit to take out student loans and charge expenses on a credit card. Credit also shapes your choices and financial opportunities after graduation.
Your credit history is part of what determines your credit score, which in turn determines whether you qualify for loans. A good credit score can also mean lower interest rates on private loans, car loans, and mortgages, which can add up to thousands in savings.
Fortunately, college students can take a few simple steps to establish credit and build a good credit score while in school. Here are seven tips for building credit in college.
1. Start Building Credit History
Your credit score depends, in part, on the length of your credit history. To start accumulating credit history, you can establish a line of credit by opening a credit card or taking out a loan.
However, college students should avoid a few pitfalls when building credit. For example, missing a credit card payment can significantly damage your credit score. Keeping a high balance on your credit card can also negatively impact your score. Try to keep purchases on your card to around 30% of your credit limit at the most, and pay off your balance every month if you can.
2. Become an Authorized User on a Credit Card
What if you don't qualify for a credit card because you have no credit history? You may be able to piggy-back off someone else's credit by becoming an authorized user.
Consider asking a parent or guardian to add you as an authorized user to one of their credit cards. Even if you never charge a single payment, authorized users get a credit boost — with one caveat: Only certain credit cards report authorized users to the credit bureaus. While other credit cards might add authorized users, they won't help your credit score.
Alternatively, you can ask someone to co-sign a credit card. However, that puts their credit on the line should you miss a payment.
3. Open a Secured Credit Card
A secured credit card helps college students build credit with little risk.
How does a secured credit card work? Instead of opening a line of credit, you send money to the credit card company to add to your account. Much like a debit card, you can only spend money you've already deposited onto the card.
Students with no credit history can often qualify for a secured card. And it can be a great first credit card for students worried about overspending, since secured credit cards only let you charge as much as you deposit.
4. Open a Student Credit Card
Credit card companies realize that college students often have little or no credit. That's why they offer student credit cards designed for people without much credit history. Students who might not qualify for a regular credit card can often open a student credit card account.
While these credit cards help undergrads build credit, they often come with a lower credit limit and higher interest rate. Once you increase your credit score, you can shop around for a better card.
5. Pay Your Bills on Time
Let's say you already have a credit card. What's the next step to help build your credit in college?
Consistently paying your bills on time will go a long way toward boosting your credit score. That's because credit bureaus track your payment history. A late payment hurts your credit score, while a record of paying on time helps your score.
Better yet, pay your bills off in full every month. You can avoid paying interest and racking up debt by making sure to pay off your credit card monthly.
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6. Pay Down Your Student Loans
Most college students graduate with student loan debt. Fortunately, paying down your student loans can boost your credit. As with credit cards, making monthly payments on your loans shows that you're a trustworthy borrower.
You can even make student loan payments before graduation. Paying off interest while in school adds to your credit history. It can also save you money down the line.
What about when you pay off your student loans? Your credit score might take a temporary dip, since a nearly paid-off loan helps your score. But the record of paying off the loan will stay on your credit report for 10 years, which can boost your credit long term.
7. Check Your Credit Report
It's important to regularly monitor your credit cards to identify any fraudulent charges. And it's also a good idea to check your credit report at least once a year. Your credit report lists all the credit cards, loans, and other forms of credit in your name. It also includes your payment history.
Fraud and identity theft can cause major credit problems. Under federal law, you can receive a free credit report from the major credit reporting companies every year. Review the report to make sure the information you see is correct.
While credit reports do not list credit scores, they show your credit history and any incorrect information. You may be able to find credit cards that periodically show you your credit score so you can keep an eye on your score and how it's changing over time.
Frequently Asked Questions About Building Credit in College
How can college students increase their credit score?
After establishing credit history, college students can increase their credit score by paying their bills on time. Late payments hurt your credit score, so make sure to pay on time and try to pay off your balance in full every month. Credit bureaus also give a boost to borrowers who keep charges low. Finally, consistently paying off loans helps raise credit scores.
Do student loans build credit?
Student loans appear on your credit report, so they can help establish your credit history. In addition, credit bureaus look at your credit mix, or the different types of credit accounts you have open. Student loans count as installment loans, a different type of credit than revolving accounts like credit cards.
Having a mix of different types of credit generally helps your credit score. Make sure you're making regular, on-time payments on your student loans, as a late or missed payment can hurt your credit.
Does paying student loans build credit?
Yes, making payments on your student loans builds credit. Student loans qualify as installment loans in which borrowers make regular payments over a set period of time. These payments appear on your credit history and demonstrate your ability to repay a loan.
While student loans can help young adults build credit, they may also affect your ability to qualify for future loans. Banks often look at your debt-to-income ratio when reviewing loan applications. A high student loan balance could hurt your chances of getting another loan or securing the best interest rate on a new loan.
What is a good credit score for a college student?
Most agree that a score of 700 or higher represents a good credit score. Credit scores range from 300-850. According to Credit Karma, the average score for those in the 18-24 age range is 630. Anything above 630 is therefore an above-average credit score for college students.
DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.
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