It is estimated that 45 million Americans do not have a credit score. Young adults and teenagers form most of this population, with 40% of young adults between 20 and 24 having no credit score. But if you’re looking to buy a home, a car, or even rent a house with college friends, you know the importance a credit score has on your success.
As a college student, you may even need to obtain a student loan, so building good credit is vital.
But how do you even build a credit score while balancing college courses and financial strain? Keep reading to learn how to build credit as a college student.
What is a Credit Score?
A credit score is a numerical value assigned to people that gauges the likelihood that an individual will pay their bills.
Credit scores range between 300 and 850, with 850 being a perfect score. Credit scores are calculated based on the length of your credit line, the number of credit lines you have, your on-time payment history, and other fiscal variables.
How to Build Credit as a College Student
We know you’re busy juggling classes and extracurricular activities, but college is a great time to start building a strong credit score. The sooner you start to build credit, the sooner you can grow it.
Below are 7 ways you can build credit as a college student.
1. Check your Score
Federal law allows you to check credit scores from the 3 main credit reporting agencies: TransUnion, Equifax, and Experian. However, some credit cards also include a free credit score check and inform you of any changes to your credit score.
Make sure you check your credit score and things that may be hurting it. This can be a great way to find debts that you may not know about.
2. Choose Your Loans Wisely
If you’re like most students, you probably will have to take out a student loan to obtain a degree. In 2012, 71% of students graduating from four-year colleges had student loan debt.
Because you’re likely to already need student loans to fund your education, you can use this opportunity to also build a credit score. Some private loaners may require a credit score, but federal student loans do not. If you need an educational loan and have zero credit, a federal student loan can help fund college and build your credit.
As with all loans, be sure to stay up on payments and use the loan as an opportunity to build credit instead of lowering it by missing payments.
3. Sign up as an Authorized User
If a responsible family member is willing, you can sign onto their credit card as an authorized user. What this means is that when they make payments on time, you will receive the credit benefit by having a strong on-time payment history.
However, it’s important for the primary cardholder to continue to make payments on time, or your credit score may actually be hurt by their missed payments.
A lot of teenagers and young adults take advantage of this opportunity to build their credit by becoming authorized users on their parents’ or grandparents’ credit cards.
4. Find a Credit Card
A lot of people start with debit cards to help establish financial restraint. If you feel confident that you will not overspend and will make payments on time, a credit card is a great next step. Credit cards often employ signing bonuses, percent cash back, and even perks such as no foreign transaction fees, miles, and free credit score checks.
A credit card is a great way to build credit, but payments must be made on time to avoid fees and hurting your credit score. Start with small, essential purchases such as gas, groceries, and restaurants.
5. Maintain Good Credit Habits
Always make your credit card and loan payments on time, and in full. Opening a credit card can be exciting as you build credit and enjoy the rewards, but be sure to only keep as many credit cards as you need, as each new line hurts your credit score. If you need a credit line increase, you can submit a request to your current credit card, rather than opening a new line.
6. Pay your Bills on Time
As a college student, you probably have other bills on top of student expenses. These include rent, internet, utilities, taxes, and even library fees. Although not all of these expenses are reported to the credit bureau, some are. You don’t want a small bill to hurt your credit, so be sure to pay all of your bills on time.
7. Don’t Co-sign Your Friends
Just like you make have needed a co-signer for a credit card or a rental property, your younger friends may also need one.
Although it is important to help people out, it is often too risky to put your credit score on the line. When they miss a payment or fail to pay a bill, your credit score will decrease. While you’re trying to build a strong credit score as a college student, it’s important to not take risks by being a co-signer.
College is a great time to start building a credit score or to start looking to increase it. You’re likely having to research the best student loans, and will regularly pay bills. You can use loans, bills, and credit card purchases to start to build and grow your credit. The longer you maintain credit and make on-time payments, the stronger your credit score will be.
It may seem difficult to imagine how to build credit as a college student, but simply use the 7 tips above to start and grow your credit score. Future purchases or loans may depend on a strong credit score, and fiscal independence starts with building credit.
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