College is a time of change and growth for students everywhere. Many students may find themselves experiencing personal 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 is 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. There are many reasons you should have a credit card in college, and building credit is one of them. 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 credit card terminology, with an emphasis on building a credit history, credit reports, and credit scores. You should be aware of the differences between credit, debit, and prepaid cards. There’s also a difference between a secured card, which requires a security deposit paid to the credit card issuer to open an account, and a student credit card, which is designed for those attending college.
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. Make sure that you are ready for the responsibility of a credit card, and are able to hold yourself accountable for your purchases.
2. Research and open an account
When it comes time to open a credit card account, there will be a wide variety of credit cards to build credit for college students. Credit cards 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, such as 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 a college student much more than an easy way to pay for school supplies. They can also offer financial security, bring peace of mind, and help students establish credit.
When you begin to look for your future credit card, make sure you take your time and find a card that works best for you. Talk to your parents for advice. Allow them to help you research and figure out which card is the right choice.
3. Practice good credit habits
Once you’ve opened a credit card account, it’s your job to practice good credit habits. Good credit habits are the key to building a good credit score, but that’s not their only benefit. Practicing good credit habits is also a good way to show your credit issuer that you know how to be a responsible cardholder, and as a result, they may increase your line of credit or provide specialized offers.
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, it’s a good idea to start by only using your card for small purchases. When you decide to use your card for larger buys, be sure to prioritize avoiding credit card debt and paying your student loans above spending frivolously.
On top of regulating and keeping up with your purchases, you also need to be working on building a solid payment history as well. It is vital that when you pay your credit card bill, you make at least the minimum payments on time every month. Doing this will help you manage your debt-to-income ratio, build your credit, and establish good habits. If you have the means, aim to pay your balance in full on or before your due 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 financial mistakes.
For example, you should always know your credit limit and never “max out” your credit card. You should also know your due date and make sure you never miss a payment. 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. Although having and managing multiple credit cards responsibly can improve your credit in the long run, applying to multiple accounts before you have a positive credit history will result in application denials, excess hard inquiries on your credit files, and potentially a decrease of 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 on your own is fairly easy when using resources such as your financial institution’s website or mobile app to view recent transactions and monthly statements.
You should always 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 card issuer 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.
What are other ways I can build my credit in college?
Although using a credit card is one of the most popular and easiest ways to build credit, achieving good credit 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
Credit builder loans are loans granted to individuals in order to build the borrower's credit. Unlike personal loans, credit builder loans are offered to people who have no credit or bad credit. As you make regular payments on the loan, your payment history will be reported to credit bureaus.
There are many different services that provide the ability to report monthly expenses like utilities, streaming service payments, and rent to credit bureaus. These financial products created to report payments, like Experian Boost, can help your FICO score because they can show 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 purchase a car 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.