One of the easiest ways to build student credit is with a student charge card. A student credit card is a credit card designed for a person with little or no credit history. As a college student, the first form of credit history that you will build will be around obtaining credit cards after picking up several thousand dollars in student loans. If you have bad credit because of missed payments or other missteps, you probably won’t qualify for a student card on your own. But this article is more about how to build credit as a student.
Become an Authorized Credit Line User
When trying to build a higher credit score as a college student, you need to take a major factor in building a credit score into account. Credit history. When using the credit history of someone with a more established credit history, either using a line of credit, aged credit accounts, or an aged credit card of a loved one or even parent. One of the benefits of becoming an authorized user is you can make purchases using your credit card. At the same time, the primary account holder is on the hook for any payments due. Being an authorized user could allow you to benefit from the primary account holder’s credit history. But negative actions could also be reported, which could affect both
Open a Mix of Credit Granting Accounts
Although it’s not as important as your payment history or utilization, having a mix of installment loans and revolving credit card accounts can also help when you work to build student credit scores. Several factors contribute to your credit score, including your credit mix. As part of its credit scoring, VantageScore and FICO take into account your ability to handle multiple credit accounts. Those include revolving credit, like credit cards, and installment credit, like a car or student loans, or mortgages, which have a set term and fixed payments.
Take Out a Credit-Builder Loan
Credit unions may offer small loans from $300 to $1,000. These loans will help in building your credit history. The loan is deposited into a locked savings account by the lender, and you make small payments over a fixed period to pay it back. Payments are reported to credit agencies to help you establish credit. And once the loan is paid off, you get access to the money in the savings account.
Only Buy What You Can Afford
It can be tempting to charge a night out with friends, for example, when you don’t have the cash on hand to cover it. But if such spending becomes a habit, it will be costly. A landlord may give you the option of making your monthly rent payment on a credit card, but pay close attention before doing so. Using a credit card can make expenses feel out-of-sight and out-of-mind, so get a receipt with your everyday purchases to help them feel more real, especially in a time when you may be charging a lot more than you normally do.
Always Pay on Time and In Full
A major benefit of paying your balance in full every period or billing cycle is it increases your score. As part of your credit and financial education, make certain to use your card as a tool for building good credit, not for spending money you don’t have. Part of building student credit is using it for small purchases you can afford to pay back on time and in full every month to keep your card’s grace period in effect. By showing the responsibility of paying your card balance in full every period. You’ll maintain control of your budget and save money on interest.
Always Pay More than the Minimum
In circumstances when it’s not possible to pay your full balance, at least pay more than the minimum amount due. You’ll make more progress toward eliminating your debt. Card issuers set minimum payment requirements very low and making that minimum payment won’t get you very far toward reducing your credit card debt as a whole.
The monthly payments for some credit cards are only 1% or 2% of your balance, plus fees and interest. In the short term, paying only the minimum can be a good way to conserve cash, so it would be wrong to say that this ought to be avoided at all costs. By paying only the minimum for a few months, however, you won’t make any real progress on paying off your balance. Long-term, however, this approach is not sustainable.
Use a Portion of Available Credit
While your newly minted student credit card might have a credit limit of $1,500. While it may be tempting to use the full $1,500. Make sure that you keep your student credit card balance under 30% of the limit to maintain a good credit utilization ratio and protect your score. While you are a student in University, chances are that your credit limit won’t be a high limit credit card anyway, most student credit cards have low limits. This is why you should only use your credit card primarily for smaller purchases, like items you would buy in the bookstore. Not for your Xbox or Steam Membership.
Use the Sign-up Bonus and Rewards to Your Advantage
Some student credit cards come with sign-up bonuses. So, as you work to build student credit, plan your credit card application around upcoming expenses, you can leverage those buys and can meet the necessary bonus requirements without making any additional purchases. The best student credit card is one that has rewards that match your spending habits.
Don’t Close Your Credit Card Account
If your credit card doesn’t charge an annual fee, keep it open to maintain the length of your credit history and your credit score. Closing a credit card can end up hurting the score you’ve worked hard to build. Closing a credit card can eventually impact other scoring factors. Your credit history accounts for 15% of your credit score. Generally, the longer you keep accounts open, the longer your credit history, which translates to a more positive impact on your credit score.
Remember This When Building Student Credit
You’re a student and building credit from scratch. Building a good credit score is not going to happen overnight. It actually takes about six months before you’re even eligible to receive a FICO Score. Take a look at some of these credit cards to use when building credit.
Q: Why is credit history so important?
A: An applicant’s credit history is used by lenders to determine his or her creditworthiness, and ultimately to determine how much credit they will grant him or her. For major purchases such as vehicles, appliances, and homes, credit is often essential. In addition, excellent credit history is often taken into account by employers and landlords when evaluating potential employees and renters.
Q: What are the best ways to build credit history?
A: Generally speaking, there are five ways that can quickly help you to build credit:
- Establish banking relationships
- Be consistent with payments
- Apply for a department store card or a gas card
- Apply for a secured credit card
- Consider a co-signer or co-applicant
Q: Does paying rent help with credit?
A: If you regularly pay your rent on time and in full, you can have your good payment history reported to credit bureaus to help raise your credit score through a rent-reporting service. Know that any rent-reporting services will require a fee for the service, which is usually paid on a monthly basis.
If you regularly pay your rent on time and in full, you can have your good payment history reported to credit bureaus to help raise your credit score through a rent-reporting service. Know that any rent-reporting services will require a fee for the service, which is usually paid on a monthly basis.
Q: Should you report rent to credit bureaus?
A: If you pay your rent on time every month, reporting your rent to credit bureaus can be a safe way to add positive payment behavior to your credit report. Rent reporting is a great option for students or those seeking to establish their credit history, as an alternative to taking on loans or lines of credit that might encourage additional spending.