As a college student, you may be learning to become financially independent — but doing so can be challenging. And, building good credit is a large part of that equation. Having good credit is necessary to borrow money with a loan, rent an apartment or even get certain jobs.
But how do you build credit as a student? After all, the Credit CARD Act banned credit card issuers from approving anyone under 21 in most instances. The only exception is applicants under 21 who have a co-signer or proof of independent income.
What that means is that you probably won’t get approved for a credit card if you can’t prove to the issuer that you have the means to pay what you owe. But with or without a credit card, there are ways to build credit as a student. And, it generally boils down to showcasing that you’re responsible with your finances.
Here’s some advice on building credit as a student from financial experts to help you get started.
1. Become an authorized user on a parent’s account
“I always advise parents when the student is going off to college, unless you’re 100 percent sure they’re responsible, the first credit card that student should have is yours,” says Mike Sullivan, former director of education for Take Charge America, a Phoenix-based nonprofit financial education and consumer debt service organization.
Becoming an authorized user on a parent’s account can help build good credit by “piggybacking” on the good financial habits of family members. If your parent has good credit, becoming an authorized user on their credit card account will likely give your credit a boost. It will also reduce the risks associated with having your own credit card, since the primary account holder is the person who’s ultimately responsible for paying the credit card bill.
2. Open up your own credit card
If you can provide proof of income, you may want to consider applying for a card in your name. But it’s important to understand that things have changed from the days when every college freshman’s dorm mailbox overflowed with credit card offers.
Most issuers are no longer clamoring to put a credit card in the hands of every college student. And, some no longer offer student cards, while others have switched to promoting debit cards on campus.
It’s also important to understand that when you receive a credit card in your name — one with no co-signers — the responsibility for repaying your debts falls squarely on your shoulders.
3. Get the right credit card for you
Once you’re able to qualify for a regular card on your own, it’s important to remember that not all credit cards are the same, says Clarky Davis, former spokeswoman for CareOne Credit Counseling.
Before you apply for a credit card, you “must do some research to find a card with the most benefits — a lower interest rate, no annual fees, reasonable credit limits and clear billing policies,” says Davis.
If you think you might carry a balance, it’s smart to opt for a no-frills, low-interest credit card. A rewards credit card may sound more appealing, but the higher annual percentage rate (APR) and likelihood of an annual fee might not be worth it.
Sullivan says some students should consider starting with a retail card. Retail cards come with fewer benefits and lower spending limits, but using this type of card and paying the bill on time each month will build good credit.
Davis says those who can’t qualify for a retail card can consider a secured credit card, which requires you to put down a deposit in return for a line of credit, usually with a limit that’s equivalent to the deposit. However, if you pay the secured credit card bill responsibly and on time, chances are good that you’ll eventually qualify for a regular credit card.
Retail cards come with fewer benefits and lower spending limits, but using this type of card and paying the bill on time each month will build good credit.
4. Use the credit card for occasional, small purchases
Since responsible card use and on-time repayments will help you build a good credit history, don’t just leave the credit card you qualify for sitting in your wallet.
“Getting a credit card means you start a credit history and shows on your credit report that you have one account and no late payments,” Sullivan says. “But if you really want to start credit, you have to use the card.”
One way to do that? Consider putting small, recurring charges on your card. It generally makes sense to use it for regular expenses, such as groceries or monthly subscriptions (like Netflix), that you won’t have trouble repaying.
5. Avoid big-ticket buys, except in case of emergency
“A credit card is a valuable financial tool. However, students must be able to manage their credit cards responsibly to benefit from using the tool,” Davis says.
Keeping your debt levels low will ensure that if there is an emergency, you’ll still have plenty of your credit line accessible. So, if your tire needs to be replaced or you need to pay for an unexpected bill, you can use your credit card to cover it without exceeding your credit limit.
A credit card is a valuable financial tool. However, students must be able to manage their credit card usage responsibly to benefit from it.
6. Pay off your balance each month
When you’re first building good credit, do your best not to carry a balance on the card. Use it for purchases you can afford, and pay off the balance at the end of each month. If you can’t do that, you’re likely living beyond your means and should reconsider making those purchases.
“A student should only have a credit card if he or she has a job or some sort of income to support this financial tool,” Davis says.
7. Pay all your other bills on time
Your credit card isn’t the only thing that affects your credit. That used to be the case, says Sullivan, but “right now, there are a lot of folks, including credit bureaus, who are developing alternative credit scores for no-file people, which includes lots of young people. They’re giving some credibility to utility payments.”
For example, Experian launched Experian Boost in 2018. If you grant Experian permission to your bank account, this platform will report mobile phone and utility payments, which could give you more control over your credit score.
All three major credit bureaus also collect and list rental payments on credit reports. However, whether or not your rent payment is reported to the credit bureaus is dependent on landlords reporting this information, and not all do.
Sullivan says other dues, such as taxes and library fees, can make a difference, too. He has seen students whose credit has been ruined because they failed to pay a traffic fine. Davis agrees.
“Paying all your bills — from apartment rent to your internet service — consistently and on time is essential,” Davis says.
8. Don’t co-sign for your friends
Just like you may need an adult co-signer to get approved for a card, your under-21 friends will, too. To help them get approved for a card, some of these friends may approach you to become a joint account holder.
“I have found that some students are getting older students (fraternity brothers, etc.) to co-sign. That is quite dangerous,” Sullivan says.
That’s because when a friend slips up – by taking on too much debt or missing payments to the bank — the co-signer’s own credit can be ruined.
“You not only become liable for everything charged if your friend decides not to pay, but it could blemish your own credit record,” says Edgar Dworsky, founder of the website ConsumerWorld.org.
Making your friend an authorized user also poses risks. But unlike when you co-sign on a card, you can easily remove an authorized user from your account.
9. Do not apply for several credit cards at one time
Once you have credit in your own name, don’t go wild. If you apply for too much credit in too short a period of time, your credit score will fall. If you have built up strong credit over several years, it will hurt you less.
“But if you have barely established credit and apply for multiple cards, it can lower your credit score significantly,” Sullivan says.
How many cards should you have? “To prevent excessive credit card debt, it’s better for consumers to have as few credit cards as possible. Having just one card is ideal for most students,” Davis says.
Once you have credit in your own name, don’t go wild. If you apply for too much credit in too short a period of time, your credit score will fall.
10. Use student loans for education expenses only, and pay on time
“Students should view their student loan as a great way to cultivate important habits that will help them build and maintain good credit,” Davis says. If you use them correctly, that is.
Sullivan sees a lot of young people take out student loans to buy cars and other non-education items, which can cause financial issues down the line.
“Manage your loans by only borrowing what you need to go to school. That keeps the balance down,” Sullivan says. “When you get out of school, be prepared to consolidate when appropriate.”
Davis and Sullivan agree the real key to keeping your loans manageable is to make at least the minimum payment every month and do it on time. Davis recommends paying more than the minimum to pay the loan off faster, and emphasizes that payments should be received by the creditor on or before the due date on the statement to keep the account in good standing.
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