How can a college student build credit with no credit?
College can come with so many new experiences. It’s likely the first time living without your parents, not having a curfew, and having a lot of freedom. Heck, you can even eat ice cream for dinner if you want. College can also come with an abundance of new responsibilities. Maybe you’re paying your own bills for the first time, for instance.
This is where building credit comes in. Your credit score can impact various aspects of your financial life, such as your ability to rent an apartment, buy a home, and get a credit card. Some companies even run credit checks on job applicants. But this is where it gets tricky, especially for college students who might not have a credit history. How can you get a credit card or a loan without an established credit history?
Here are a few tips as you begin your credit-building journey.
What does it mean to build credit?
Having good credit can help you in ways you never thought of. For example, some apartment rental properties will use your credit score to determine whether they want to rent you a unit. Some employers may check your credit for insights about a potential new hire. Solid credit is essential when borrowing money, such as getting a mortgage, a loan, or a credit card.
To build credit, it helps to open lines of credit such as a credit card or a loan and make payments on time, keeping your accounts open and your balances low.
If you keep yourself in good standing, your credit history can show future lenders that you can make payments on time and are responsible when it comes to managing your finances. Your credit score will impact how much you pay on a future home and car, your ability to take out a loan, and the interest rate you’ll pay on that loan. That’s because people with high credit scores often get preferential interest rates when they borrow.
What’s a good credit score?
Credit scores range from 300 to 850, with 850 being the best. Generally, a credit score of 680 or above is considered good, while any score above 740 is considered excellent.
Several factors affect your credit score, including:
- Payment history
- Percentage of your credit limits used
- Debt balances
- Credit inquiries
- Available credit
- Number of accounts
- Length of time credit accounts have been open
Each factor holds value and affects your credit score. Make sure you don’t open too many credit cards at one time. Each time you apply, a hard inquiry is added to your credit report, which can lower your credit score. Multiple inquiries can make you look like a particular credit risk. In addition, maintain a solid payment history, spend responsibly, and check your credit report to track your progress.
How to build credit as a college student
Your credit history is partially impacted by how long you’ve had accounts open. The earlier you start building your credit, the better. Here are some tips for beginning the process.
Become an authorized user
Your parent or guardian has the option to add you as an authorized user on their credit card. As an authorized user, you’ll have your own credit card and can access the primary cardholder’s credit limit. Still, you won’t be legally responsible for paying off the credit card debt. You don’t have to use the card, but having your name on the account could allow you to start building credit history.
If you do this, ensure the credit issuer reports authorized users to credit bureaus. Your credit report won’t be affected if the credit issuer doesn’t report authorized users.
It’s important to note that, in some cases, becoming an authorized user can hurt your credit score. If the primary account holder isn’t in good standing or has late or missed payments, that could impact your credit score negatively. Before you do this, make sure it’s the right decision for you financially.
Open a student-specific credit card
Many credit card issuers understand the significance of students having access to credit and might offer special student credit cards tailored to their needs. Sometimes, you don’t need a credit history to open a student credit card. Some cards may offer perks such as cash back for good grades or increasing your rewards rate for making timely payments.
Open a secured credit card
Another option for building credit is to open a secured credit card. A secured credit card is similar to a debit card and is backed up by a deposit that is paid up front. This deposit will serve as part or all of your credit limit. However, with a secured credit card, your secured credit card activity will be reported to credit bureaus. One way you could build your credit score is to make small daily purchases with your secured card.
Get a cosigner
Like getting a cosigner with loans, you can also have someone cosign a credit card. If you open a credit card account with a cosigner, you’re the primary cardholder responsible for making the payments. Remember, since you do have a cosigner, if you miss payments, your cosigner will be responsible for paying off any debt on your account, and it’s not likely that your cosigner will be happy about that. Taking on a cosigner is a big responsibility, and you ultimately don’t want to let them down.
How to build credit as a college graduate
As a new college graduate, building your credit is something you should pay attention to. It will be even more important when you’re out of school. Here are a few tips to help you along the way.
Start using a credit card if you haven’t already done so
Credit cards can help you build your credit. If you didn’t get a credit card in college, consider opening one. If you can’t qualify for a regular credit card, you can look at opening a secured credit card. It’s important if you do get a credit card that you use the card responsibly, which is another important aspect of building good credit.
Pay all your bills on time
If you want to build good credit, make sure to be timely with your bills so future lenders know you’re responsible and can manage your finances effectively.
Make sure your rent payments are reported
As a new college graduate, you’re likely paying rent. You can work with your landlord to have your rent reported to credit bureaus, which can help you establish your credit history.
Final thoughts
The thought of building credit may seem overwhelming, especially if you’re a college student with a limited income. However, resources are available to help you and ensure that you set yourself up for success.