Graduating with a high credit score can really help you get ahead in life, but building your credit score as a college student can be hard. While most lenders won’t open an account for a college student without an income, there still a few ways to build good credit in college.
Start by Getting a Credit Card
You’re not going to start mortgaging a house or leasing a car as a freshman in college so the best way to start building credit card is the best way to start building a credit history. This is important because, without any debt or any credit, you currently have no history. Without any history, your score will be relatively low because the bureaus know nothing about you.
There are a few ways to get a credit card as a college student. The first is to simply apply for one of the many college credit cards that are offered by various credit card companies, credit unions, and banks. Many of these cards are forgiving on income and credit requirements which prevent many students from obtaining a credit card. Another option is to apply for store-branded credit cards, which usually have low credit requirements as well. The final option is asking your parents to be added as an authorized user on one of their cards. By doing that, you instantly get that history added to your own history. Your parents don’t even need to give you the card, though they might just for use in emergencies.
Use Your Credit Care Responsibly
Once you have a credit card you need to start using it responsibly. This is very important because simply owning a credit card won’t do much to help your credit score. Additionally, using your credit care in an irresponsible manner can really hurt your credit score.
- Don’t Carry A Balance – Always pay what you owe at the end of each month in full. Carrying a balance does not help your credit score and you’ll end up spending more money because you’ll pay interest on what you don’t pay.
- Pay On Time – It’s best to sign up for automatic payments because forgetting to pay a credit card bill can have devastating consequences. Not only can it hurt your credit score, but the credit card company will charge you a late fee.
- Stay Under the Credit Limit – You should keep your spending to about 30% or less of your credit limit. Maxing out your credit cards will not help your credit score and exceeding the max can really hurt you.
- Don’t Open Multiple Accounts – The age of your oldest account and/or the average age of your accounts is a key factor of your credit score. It’s best to open a single credit card account in college and use it until you get your first job.
- Don’t Close Your Account – When you close an account, you also lose the credit history that was associated with that account. If you chose to stop using a credit care, then just stop using that card.
Follow these rules over your four years of college and you’ll graduate with an excellent credit score. As mentioned in a previous article, graduating with a high credit score can really help you once you enter adulthood.
Use Your Student Loans Wisely
Student loans are the most common form of credit among college students. However, since you don’t pay them off while in school, they won’t contribute to your credit score until after graduate. The best thing to do is minimize the amount you owe so that you can pay off your student loans as quickly as possible.
- Use Loans for Education Expenses Only – In the best scenario you should only take out loans to pay for your tuition. Find other ways to cover expenses such as housing, food and transportation.
- Set a Budget For Yourself – The biggest problem with student loans is that they are given to you in one bulk sum and it’s easy to spend it too quickly on things you don’t need. When you get your loan money, calculate how much you need to essentials like tuition, rent and utilities. Then see how much you have left to spend on other expenses.
- Start Paying Off Loan Immediately – Once you graduate, starting paying off your loans as quickly as possible. Don’t just pay the minimum; the more you pay, the sooner you will be done. Also, never miss a payment deadline to keep the account in good standing.
Avoid Making Poor Credit Decisions
In addition to the many things you should do in college to build you credit score, there are a few things you should avoid.
- Co-Sign with a Friend – While co-signing with your parents will help your credit score, the same is not true for a co-signing with a friend. The second your friend misses a payment, your credit is negatively impacted.
- Beware of Identity Theft – Be careful of where you use your credit card and where you write down your information. Also, add alerts to your card to warn you if there is any suspicious activity on your card.
- Avoid Yearly Fees – Chances are you’re not going to use your college card after you graduate so it’s best to get one that does not charge a yearly fee. That way, you won’t have to choose between continuing to pay the fee or closing the account once you switch to a new card.
- Don’t Fall for Cheap Promotions – Many credit card companies will try to trick you into signing up for a lousy card by offering you a frisbee or T-shirt when you sign up. Usually, these cards have low spending limits, yearly fees, and not enough benefits. Instead, do you research and pick a card that is best for you.
Avoiding these common rookie mistakes can really help you avoid a lot of headache down the road. Building your credit score shouldn’t be hard, so follow these simple tips and you’ll be on your way to financial success.