Financing 101 | How to Build Credit as a College Student
You may believe you won't need good credit until you're ready to buy a house, but credit is important for many reasons, even during college. In some states, employers check credit histories to help them make hiring decisions. You must have a credit history for most conventional car loans. Even your car insurance rate could be tied directly to your credit report.
Having good credit will help you avoid expensive down payments and deposits for your cell phone and utility services, and it may even reduce the size of your deposit on your apartment.
Building credit in college is a good idea, but it pays to be careful
For many college students, credit cards cause problems. Living on a tight budget makes it easy to run up the balance on the card, but a low or irregular income and high interest rates make it difficult to pay it off.
Fifteen percent of your credit score is made up of the length of your credit report, or how long you've been making payments on loans or revolving accounts like credit cards. One way to get the advantage of having a credit card in your history without the risk is to ask your parents if they will add you to their account as an authorized user.
You don't need a physical credit card, and you don't have to ever use the account, but if you are the authorized user, the credit card company reports positive payment information to your credit file in addition to your parents' credit file. Just make sure it's a credit card with a perfect payment history and a low balance, or it could actually hurt your credit score.
If you decide to get a credit card in your name, look for a card with no annual fee and with perks that you'll use. Frequent travelers should seek out a card with no foreign transaction fees. If you pay off your balance in full each month, you won't have to pay interest. Thirty-five percent of your credit history is a reflection of your payment history, so make every payment on time.
Resist the urge to take advantage of store credit card promotions. Many retail credit cards begin to add interest the same day you make the purchase, which raises the price of everything you buy with the card. Interest rates usually fall in the 20-30 percent range, so it's better to avoid this type of credit product.
Building credit as a student with a loan
If you need a car loan, make sure that the creditor reports your account activity to the credit bureaus (Experian, Equifax or TransUnion). Make every payment before the due date. You may pay a higher interest rate for your first car loan if your credit file is slim, but with a good payment history, rates on your next loan will drop.
Try to work with a company that specializes in car loans for students. It may be easier to qualify for a student car loan. Auto dealerships usually offer to finance with one of their partners, but you may be able to find a better deal on your own.
Part of building good credit is making all your payments on time, no matter what happens. Sign up for paperless billing right away with all your creditors to prevent mix-ups when you move. Many companies have payment apps that help you keep track of your accounts.
Even during the years when you don't have a high income, it's smart to start working on building your credit. Building good credit while you're in college will set you up for financial success after graduation.
