In college, many students may find themselves experiencing freedom and financial independence for the first time. While college is a prime occasion for meeting new people, learning new things, and having fun, it's also a great opportunity to build your credit score. Applying for a credit card is one of the easiest ways to accomplish this.
Credit cards are helpful when paying for everyday expenses and necessities, like textbooks or gas. Whether you’re out for a quick grocery run or lunch with a friend, having a credit card often comes in handy. Here’s how you can build good credit as a college student in 5 easy steps.
1. Learn about credit and credit cards
In order to build good credit, you first need to understand credit and everything that comes with it. A good place to start is learning about credit utilization, history, reports, scores, and other credit card terminology. You should be aware of the differences between credit and debit cards. A secured credit card is another card to be familiar with. Secured cards require a security deposit to open an account.
One of the most important things to know about credit is that in order to get good credit, you must use credit responsibly. It can be tempting to think of a credit card as “free money” while out shopping with friends. However, anything you pay for with a credit card will have to be paid for with your own money at a later date. A good rule is to only buy items you need that you know you can afford. Even though you can start building credit at 18, make sure that you are ready for the responsibility of a credit card.
2. Research and open an account
When it comes time to open a credit card account, credit can differ in terms of benefits, eligibility, interest rate, and more. Some cards are made to benefit college students specifically, such as student credit cards, or benefit specific kinds of purchases, like travel cards. It’s important that you do your research before you open an account.
College students are often encouraged to open a credit card account if they are of age and have the resources needed. A credit card can offer students a convenient way to pay for school supplies. There are many other reasons to get a credit card in college, including financial security and peace of mind.
When you begin to look for your future credit card, make sure you take time to find the card that works best for you. Talk to your parents for advice. Allow them to help you research and figure out which card is right.
3. Practice good credit habits
Once you’ve opened a credit card account, it’s your job to practice good credit habits. Building a strong credit score is not the only benefit of good money habits. Your actions also show your credit card issuer that you know how to be a responsible cardholder. Later down the road, they may increase your line of credit or provide specialized offers as a result.
First and foremost, don’t treat your newly acquired credit limit as an extension to your bank account. It’s important to be disciplined with your budget and not spend money you don’t have. In order to keep your balance manageable, start by only using your card for small purchases.
On top of tracking your purchases, you also need to work on building a solid payment history. It is vital that when you pay your credit card bill, you make at least the minimum payment on time every month. Doing this will help you manage your debt-to-income ratio, build your credit history, and establish good habits. If you have the means, pay your entire balance by your payment date, as this will allow you to avoid paying interest on your purchases.
4. Avoid credit mistakes
When it comes to being a credit cardholder, avoiding mistakes plays a huge role in determining your credit score. This is just as important as practicing good credit habits. When using your credit card, do your best to be aware of and avoid these financial mistakes.
For example, you should always know your credit limit and never “max out” your credit card. You should also be aware of your due date and make sure you pay your bills on time. Remember, the goal is to pay off your balance on time and in full every month. It only takes one late payment to potentially hurt your credit score
Steer clear from applying for multiple cards within a short time period. It’s true that having and managing multiple credit cards responsibly can improve your credit in the long run. However, applying to multiple accounts before you have a positive credit history will result in application denials, excess hard inquiries on your credit files, and a potential dip in your credit score.
5. Keep an eye on your account
Regardless of where you are in your credit journey, you should always be keeping a close eye on your account(s). Luckily, monitoring your account is fairly easy when using your financial institution’s website or mobile app to view recent transactions and monthly statements.
Frequently check your credit statements to make sure everything is normal. Be sure to look into any unfamiliar transactions, no matter how small they may be. Unauthorized purchases can come in any amount. If your card is lost or stolen, notify your credit card company right away. Identity theft and fraud can affect anyone, even those who are extra careful with their card. Make sure you’re taking steps to protect yourself from scams.
What are other ways I can build my credit in college?
Although using a credit card is one of the easiest and most popular ways to build credit, achieving a good credit history without a card isn’t impossible. In fact, there are several other loans and credit card tricks to build credit for the first time. Here are a few ways young adults can start their credit journey.
Get a credit builder loan
Money granted to an individual for the purpose of building the borrower's credit is known as a credit builder loan. Unlike personal loans, credit builder loans are offered to people who have no credit or bad credit. As you make regular, timely payments on the loan, your payment history will be reported to a credit bureau, like Experian, Transunion, or Equifax.
Report payments
Some services make it possible to have everyday expenses, like rent, utilities, and streaming subscriptions, reported to credit bureaus. Some financial tools, like Experian Boost, allow you to report regular payments and can help your FICO score as they can indicate proof of a positive payment history.
Become an authorized user
Being an authorized user of a parent or guardian’s credit card gives you access to the account holder’s card and credit line. If positive, the account’s behavior can begin to help grow your credit. Although, if the main cardholder fails to make payments, your credit will also be impacted.
Having a good credit score is a vital factor for many important things in your life. It can benefit you when you’re ready to take out an auto loan, refinance your student loans, or rent your own apartment. Getting a credit card in college can help you achieve good credit in the future. The sooner you begin to build credit, the more time you will have to reach your financial goals.
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