How to Build Credit as a College Student
- The term credit invisible is applied to those with little or no credit history.
- A strong credit history could give you access to low-interest loans, saving you money over time.
- Paying all bills on time is one of the most important things you can do to build your credit.
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No one is born with a credit score. In fact, we’re all considered credit invisible until we build a credit history. While that’s fine for kids, by the time you’re in college, having a credit history becomes more important. Having a strong credit history can make it easier to access housing, car loans, and, in some cases, employment opportunities.
Fortunately, if you’re starting out, that means you have a clean slate. You get to decide what you want to include in your credit history. Here are some tips that could help you get started on your credit journey.
Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.
Open a Bank Account
If you haven’t already, now is a good time to open a checking and savings account. Establishing a banking relationship can be beneficial for your financial profile and could be an important first step. Don’t forget to consider both banks and credit unions to determine which style of banking you prefer.
Practically speaking, having accounts can help you track your spending and savings, so you always know where you stand and your budget doesn’t get lost in the everyday busyness of college life.
Apply for a Student Credit Card
As the name suggests, student credit cards are designed with students in mind. For example:
The spending limit is typically lower (which is a good thing). The point is to use the card to build a positive credit history.
Student cards often have low (or no) annual fees. You’ll need to shop around to find a good card with low costs, but it’s worth the time and effort.
The goal with any credit card is to make it work for your convenience, not to buy things you can’t afford. Make small charges and get into the practice of paying the card off in full each month before interest is added. Regular, on-time payments are the most powerful factor that drives credit scores.
Become an Authorized User
Just being an authorized user on the card of someone with excellent credit can help you build your own. Here’s how it works:
You ask a trusted family member or friend if they’ll add you as an authorized user on their credit card.
You don’t need a card of your own because you’re not going to use it.
Each month, when the cardholder makes a payment, it gets reported to the credit bureaus under both of your names, enhancing both of your credit scores.
This strategy only works if the other person pays their bill on time each month and keeps the balance low or paid off. If they rack up debt or miss payments, your credit history will show those negative marks.
Pay All Bills on Time
Whether it’s rent, a cell phone, or a utility bill, make sure it’s paid on time each month. Some services report this activity to credit bureaus, which helps build your credit score. If you don’t feel like you have time to babysit your bills, that’s okay! Set up automatic payments so they get paid, even if you’re in the middle of finals.
Keep Your Credit Utilization Low
More is not necessarily better in the context of credit usage. In the future, creditors will look at how much of your available credit you use to determine how well you manage credit once it’s granted to you. It’s a good thing to have credit but not use it.
Let’s say you have a credit card with a $1,000 spending limit. If you use the card, do your best to pay it off each month. If you need time to pay off a purchase, aim to keep your balance under about $300-$350. Low credit utilization shows creditors that you use credit responsibly and don’t charge more than you can afford to repay.
Most credit card issuers report the balance once a month. So if you have a higher balance, just try to pay it off before the date your card issuer reports to the credit bureaus.
Monitor Your Credit Reports
Even as you’re starting out, it’s smart to use a free service like annualcreditreport.com to regularly check your credit reports from the big three credit reporting bureaus—TransUnion, Experian, and Equifax. You never know how many people share your name or how often their credit activity may appear in your report.
Credit reports could have other kinds of errors, too. Your credit score is based on the information found in your credit report, and if your report contains errors, your credit score could also be inaccurate.
If you find an error, dispute it with the credit bureau in question. For example, if the mistake is found on a TransUnion credit report, notify TransUnion. Credit bureaus have 30 days to either prove the information is correct or remove it from your report.
Note about credit reports: Be sure to order your reports from a company that provides them for free. If a company offers you a trial period, it’s okay to pass it up and find one that never charges a fee, even after a trial period ends.
What About Credit Builder Loans?
As a college student, don’t be surprised if you receive offers for credit builder loans. When you get a credit builder loan, you don’t get the money until after you pay it back. While these loans could help you establish a positive credit history, there are other—less expensive—ways to do it. To be fair, a credit builder loan can be an excellent way for individuals to rebuild their credit scores, as payments are reported to the credit bureaus.
However, credit builder loans may not be right if you’re a college student with little or no credit to improve. That’s because some come with higher-than-average fees and interest rates, which adds to the overall cost. There are ways to build a credit history that won’t cost you extra, such as getting a student credit card.
Author Information
Written by
Dana George
Dana is a Freedom Debt Relief writer. She has been covering breaking financial news for nearly 30 years and is most interested in how financial news impacts everyday people. Dana is a personal loan, insurance, and brokerage expert for The Motley Fool.
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
How could opening a bank account benefit me?
Let’s say you open a checking and savings account with a local credit union. This is the establishment you use to deposit checks and pay bills. Later, when it’s time to buy a car or take out a personal loan, you can go back to that credit union for the loan. Since it has a record of your banking history, there’s already a connection between you, and if you have a positive relationship, that connection could make it easier to get loan approval.
Why does it matter if I check my credit reports? After all, I don’t have a long credit history yet.
More than one-fifth of Americans have errors on their credit reports. Some of those errors are the kind that affect credit scores. It’s up to you to ensure that everything included on your credit reports is correct. By checking your reports as you’re starting out, you get in the practice of keeping your eye on your credit.
How do you save money as a new grad?
As a new college grad, you can save money by keeping your biggest expenses, like housing, as low as possible. That could mean getting a roommate, or giving up amenities or square footage. Also do most of your own cooking to save on food costs, and seek out low-cost entertainment. Finally, aim to avoid debt as much as possible by saving up for purchases. The less debt you have, the less money you spend on interest, and the more you can save.