Building Credit as a College Student
Transitioning into adulthood comes with significant growth, in addition to some challenges. There are several things your need to learn after leaving your parents’ home and going to college, including how to establish your credit. Read on for some practical tips on how to help build good credit as a college student.
1. Become an Authorized User
One of the easiest ways to start building your credit as a student is by becoming an authorized user on someone else’s credit card account. The primary cardholder, such as your parent, grandparent or legal guardian, can add your name to their credit card.
Keep in mind that the cardholder’s activity and history will directly affect your score. Both good and bad habits, such as missed payments or carrying large balances, will be reflected on your credit history. Choose a responsible person as the primary cardholder, so you get off to a great start.
2. Get a Credit Card
Opening the first line of credit under your name is one of the best ways to start building a credit history when you’re a college student. Initially, you may have trouble finding a bank that will give you credit without any previous history. But some institutions offer secured cards for first-time clients.
Secured credit cards don’t have a high spending limit, and you need to make an initial deposit which later becomes your credit line. These types of cards will teach you how to manage your money wisely as you start building your credit.
3. Request a Credit-Builder Loan
Some banks and credit unions allow for people with no credit or poor credit histories to apply for a credit-builder loan.
With this approach, the lender won’t give you access to the amount of money you’ve requested until you make all the payments. Your funds stay in a savings account and are available once you’re done paying off the loan. This is a good alternative for students who don’t want to face high-interest rates if they can’t pay for what they’ve purchased on a credit card.
Before you go to a bank, do some research to see which lender offers the best program and borrowing options for your needs.
4. Pay Rent and get Credit for it
While paying rent on time every month doesn’t normally have a direct impact on your credit score, there are services who help ensure your positive history as a tenant is reflected by the three main credit bureaus. There’s a small fee for using these services in return for building your credit.
This is a good option if you’re living off-campus and are a responsible person who pays rent on time each month.
5. Establish Good Habits Early on
Obtaining a good credit score isn’t a race; it’s a lifelong commitment to managing your money well. A good score makes you trustworthy in the eyes of lenders, and developing good habits early on is a sure way to start building good credit.
Keep your credit spending under 5 percent and make your credit card payments on time every month. A late payment could drop your score significantly, and it may take years to clear such a mishap from your history. Set up auto payments or reminders to avoid any late payments.
Don’t open multiple accounts at once. While it might be tempting to have many lines available at the same time, lenders see this as a red flag, especially if you don’t have many years of credit history. Keep one or two accounts and build your score gradually as you become more comfortable borrowing and paying back money.
The sooner you start building your credit, the better. Developing good money habits early can help you avoid getting into debt.
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