College students need to build credit for many reasons. Having a good credit score can open doors to financial opportunities later in life, such as purchasing a home, getting a car loan, or securing favorable interest rates on credit cards. Building credit can also help you qualify for student loans, apartments, and even jobs. Fortunately, there are steps you can take to establish and maintain good credit. Follow our blog for more information on credit reporting.
Here are 10 tips to help college students build credit:
1. Open a Bank Account
Though it may sound obvious, opening a bank account and regularly depositing money is one of the best ways to start building credit. Doing so will help you establish a positive relationship with a financial institution and could help you get approved for a loan or credit card with that institution down the line.
2. Get a Credit Card
One of the best ways for a college student to build credit is to get a credit card. A credit card is a great way to show lenders that you are responsible with money and that you can manage your finances. It is important to only use credit cards for necessary purchases and to always make payments on time. When shopping for a credit card, look for one with low interest rates and no annual fees.
3. Become an Authorized User on an Existing Card
If you can’t qualify for a credit card on your own, you can become an authorized user on someone else’s account (e.g. parent, grandparent, friend). This person will be responsible for any charges you make, but the activity will be reported to the credit bureaus, helping to build your credit. This means that you can use the card but are not responsible for the bill. This is a great way to build credit without the risk of missing payments.
4. Use a Secured Credit Card
A secured credit card is another option for college students who may not qualify for an unsecured credit card. This type of card requires a deposit, which is used as collateral, and the amount of your deposit determines your credit limit. This is a great option for students who want to build credit but don’t want to take on too much debt.
5. Only Borrow What You Can Pay Back
It’s important to use credit cards responsibly. Don’t charge more than you can afford to pay off each month. Make sure to keep your credit utilization rate low, which means keeping your balance at or below 30% of your credit limit. Paying off your balance in full each month is a great way to maintain a low utilization rate (which also helps your score).
6. Pay Your Bills on Time
Keeping the last tip in mind, always pay your bills on time, as this is one of the most critical components of a good credit score. Failing to pay bills on time will negatively affect your credit score, so it’s important to make sure that you are paying off all of your accounts in a timely manner. Setting up automatic payments or reminders is a great way to ensure you never miss a payment.
7. Monitor Your Credit Report
Checking your credit report is a great way to stay on top of your credit score. You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. You can also use a credit monitoring service to track changes to your credit report in real-time. If there are any errors, make sure to contact the credit bureau as soon as possible to get them corrected. Follow our blog for more information on credit reporting.
8. Don’t Close Unused Accounts
Closing unused credit accounts can harm your credit score. Keep your accounts open, even if you’re not using them. This will help you maintain a positive (and longer) credit history, which is key to building good credit. As a college student starting to build credit, your score might be lower for some time, simply due to not having credit for a long time.
9. Limit Credit Card Applications
Applying for too many credit cards can also hurt your credit score, so it’s important to limit the number of credit card applications you submit. This also means do not take out too many loans! Most people suggest one to two hard inquiries per year, which would be one to two credit card/loan applications per year.
10. Join a Credit Union
Joining a credit union can be a great way to build credit. Most credit unions offer secured credit cards, loans, and other financial services that can help you build your credit score.
Many college students have little-to-no knowledge of how credit works, why it is crucial when coming into adulthood, and how to build it. Building credit takes time and patience, but with the right tools and knowledge, it is more than possible to build an impressive credit history. With a good credit score, college students can take advantage of the financial opportunities that come their way for the rest of their lives! Follow our blog for more information on credit reporting.