6 Ways College Students Can Build Credit
Building credit as a college student has its challenges, but there are some simple steps you can take to achieve your goal by the time you graduate.
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As a college student, you're doing important work that will affect your future. But beyond your education, there are other things you can do to set yourself up for success after graduation. One of those things is to start building your credit history.
Students don't have as many credit opportunities as consumers who have established credit profiles, but the sooner you start the process, the more opportunities you'll have as you leave school and start your career.
Here are six steps college students can take to build a credit history from scratch.
1. Apply for a Credit Card
Credit cards are one of the best ways to build your credit because you technically don't have to pay interest. Simply use the card for everyday purchases and pay it off in full every month by the due date.
In doing this, your card issuer will report the payments to the national credit reporting agencies, and that information will be considered by your FICO® Scores.
Also, keeping your credit utilization ratio, or the percentage of your available credit that you're using at a given time, low will help you establish a positive history.
Student credit cards are available to and specifically designed for college students. You may be able to earn rewards and extra perks for good payment behavior. If you can't qualify for a student credit card, you may also consider a secured credit card, though that option requires an upfront security deposit to get approved.
2. Get Added as an Authorized User on a Parent's Credit Card
Whether or not you choose to get a credit card on your own, ask a parent if they can add you as an authorized user on their credit card account. When they add you, you'll receive a card for your use that's tied to their account, and the entire account history will be added to your credit reports.
As long as the account has a positive payment history and the credit utilization ratio is relatively low, your authorized user status can help you establish and increase your FICO® Scores.
3. Make Interest-Only Student Loan Payments
College students generally aren't required to make payments on their student loans while they're in school. In fact, you can typically count on a six-month grace period after you graduate, leave school or drop below half-time status before your payments are due.
However, while your student loan accounts are on your credit report, you may not benefit much from them until you start making payments.
Making interest-only payments as a student will not only positively affect your credit history but will also keep the interest from capitalizing and adding to your student loan balance.
If you have federal student loans, keep in mind that interest will not accrue on your loans until September 2022.
4. Try to Get Credit for Rent and Utility Payments
Rent and utility payments have historically not been included in consumer credit reports. But some companies, including PayLease, Rental Kharma and Rent Track may be able to help you add rent payments to your credit file.
Additionally, Experian Boost can allow you to add utility, phone, and even streaming service payments to your Experian credit report. The newest FICO® Scores will incorporate this information if it shows up in your credit file, so it could potentially help you establish a wider foundation and increase your FICO Scores over time.
5. Ask a Parent to Co-Sign a Loan
You don't necessarily need to take out a loan just to build credit. But if you're thinking about buying a car or financing another large purchase, you may have a hard time getting approved on your own. Even if you can get approved, you may face high interest rates and fees.
A solution to this potential problem is to ask a parent to co-sign the loan application. This agreement ensures that if you can't repay the debt, your parent will, so the lender is more willing to issue the credit with favorable terms than if you were to apply on your own.
Keep in mind, though, that the loan will show up on your credit report as well as on your parent's credit report, so you'll want to make sure to pay on time to avoid damaging both of your FICO® Scores.
6. Consider a Credit Builder Loan
While the other ways to build credit are generally better, you may also consider taking out a credit builder loan. These loans function a bit differently from traditional loans. Instead of giving you the full amount upon approval, the lender will put the money in a savings account or certificate of deposit.
You'll then make monthly payments for a set period, which the lender will report to the credit bureaus. Then, once you've completed the repayment term, you'll receive the loan amount.
These loans usually have relatively low interest rates because the funds are held by the lender until you complete repayment. But because you don't get the money upfront, you'll want to make sure you can afford the payments.
The Bottom Line
Building credit as a college student can take time, so it's important to get started as early in your education as possible. Fortunately, there are plenty of opportunities to build credit, even if they come with some limitations, and it's possible to have a fully established credit file by the time you graduate.
As you work to build your credit history, use credit monitoring tools to keep track of your progress and to better understand how your actions impact your FICO® Scores.
Ben Luthi has been writing about money and travel for seven years. He specializes in consumer credit and has written for several major publications and industry leaders, including U.S. News and World Report, Fox Business, Wirecutter, Experian, and Credit Karma.