How to Build Credit as a College Student

It’s important to start building credit as soon as you can and doing so as a student is an important step towards financial independence and a solid financial future. Establishing good credit early on can open doors to opportunities such as renting an apartment, getting a car loan, and even securing a job. In this article, we will explore effective strategies to help college students build credit.

Why Do You Need Good Credit?

Having good credit is essential for various reasons. First and foremost, it allows you to qualify for financial accounts at favorable interest rates. A higher credit score can significantly reduce the amount of interest you pay over time, saving you money in the long run.

Additionally, landlords and utility companies often check credit to determine your level of financial responsibility. Without a solid credit history, you may be required to pay a higher deposit or may even be denied these services altogether.

Furthermore, some employers conduct credit checks as part of their hiring process. It is not uncommon for certain industries, such as finance or government, to consider your financial history when making hiring decisions.

Tips for Building Credit

Start with a Student Credit Card

One of the easiest ways for students to build credit in college is by applying for a student credit card. These cards are specifically designed for students and often come with lower credit limits to promote responsible use. Look for a card with no annual fee and low interest rates.

When using your student credit card, be sure to make payments on time and keep your balance low. Aim for only essential expenses that you can afford to pay off each month. This will help you build a positive payment history and avoid accumulating unnecessary debt.

Open a Checking and Savings Account

In addition, opening a checking and savings account can also help in building your credit as a student. While these accounts don’t directly impact your credit, they can indirectly contribute to your creditworthiness.

Having a checking account shows responsible money management, as it demonstrates that you can handle your day-to-day expenses and avoid overdrafts or bounced checks. This responsible behavior can be seen as a positive indicator of creditworthiness by potential lenders.

Opening a savings account, on the other hand, allows you to start building a relationship with a financial institution. Establishing a relationship with a bank can be beneficial in the future when you need to apply for any type of credit.. Lenders are more inclined to lend money to someone they have an existing relationship with.

Become an Authorized User

If you are hesitant to open a new account, another option is to become an authorized user on someone else’s credit card. This could be a parent, guardian, or close family member who is financially responsible. By being an authorized user, their positive payment habits and account history can be reflected on your own credit report. However, it’s important to ensure that the primary cardholder is responsible with their card usage and makes payments on time.

Pay Bills on Time

While not all bills are reported to the major credit bureau, it’s still important to establish good financial habits by paying your bills on time. This includes your rent, utility bills, and any other monthly expenses. Late payments or missed payments can have a negative impact on your credit score and make it harder to build credit.

Consider setting up automatic payments or reminders to help you stay on top of your bills. This way, you can avoid any negative marks on your credit and demonstrate responsible financial behavior.

Get credit for your rent payments

Another way to build credit while in college is to get credit for your rent payments. Rent is often a significant monthly expense for college students. There are platforms available that allow you to report your rent payments to credit bureaus, such as Self or Kikoff. By opting to report your rent payments, you can start establishing a positive credit history and potentially boost your score.

Apply for a Secured Card

Secured cards can be a good option. These types of cards require you to make a security deposit, which then becomes your credit limit. This provides assurance to the lender that you will pay back any charges made on the card.

Using a secured card responsibly by making regular payments and keeping your balance low can help you build credit over time. It’s important to treat this card like any other account and avoid carrying a high balance or missing payments.

Pay Down Your Student Loans

Paying down your student loans can also help you build credit early on. Making on-time payments towards your loan demonstrates responsibility and can positively impact your credit rating. It shows lenders that you can manage your debts effectively. Consider even making extra loan payments in addition to your normal monthly payment.

If you have multiple student loans, consider consolidating them into one loan. This can simplify your repayment process and make it easier to manage. Just make sure to continue making your payments on time and in full to build credit.

Pull your Credit Report

Under the Fair Credit Reporting Act, you are entitled to a free copy of your report from each bureau once a year. To obtain your free credit report, you can visit AnnualCreditReport.com.

Key takeaways

1. Use a mixture of credit types: Building credit as a student involves diversifying your credit portfolio and having a good credit mix. Lenders want to see that you can manage different types of credit responsibly.
2. Keep your credit utilization low: Credit utilization refers to the percentage of your available credit that you’re using. Aim to keep your credit utilization below 30% to demonstrate responsible credit management.
3. Make timely payments: Whether it’s your student loans, credit related bills, or other bills, it’s crucial to make all of your payments on time.

Make sure to also review our blueprints on how to start building credit for the first time and how to start building credit with no credit. And if you’re only 18, we also have some great tips about how to start building credit at 18.

Remember: building credit is an essential step towards establishing a solid financial foundation for the future. By responsibly managing your credit, and diversifying your credit portfolio, you can gradually build a positive credit worthiness. With good credit, you’ll have greater access to financial opportunities, such as lower interest rates on credit accounts, better renting or housing options, and increased financial independence. So take control of your credit and start building a bright financial future today for free with Dovly!