When you’re a college student, you have a lot going on – from writing papers and studying for exams, to participating in campus activities. Chances are with your busy schedule, building your credit score is the last thing on your mind.
You might think, “Why do I need to worry about credit now?” Truth is, your credit follows you your whole life and enables you to get what you need, like a cell phone plan, utilities and credit cards.
Here’s everything you need to know about building your credit while in college.
Get a Credit Card
While you may be wary of getting a credit card, it can be a great tool to help you build credit — if you use it appropriately. Applying for a student credit card is a good first step, since those cards tend to have less stringent requirements regarding your income and credit history — and college students often have limited amounts of both.
Don’t sign up for a credit card just to get a freebie like a shirt or a ball. Instead, take the time to read the fine print and consider the annual fee the card charges (if any), the grace period for making payments, the interest rate, plus other fees and any rewards like cash back.
Smart Ways to Use Credit Cards
If you don’t qualify for a credit card on the first try, do not attempt to sign up for other credit offers as this can harm your credit score. Don’t worry, you’re not doomed to have poor credit forever. Try asking your parents to add you as an authorized user on their cards — as long as they have positive history with them. You can also apply for store cards, secured cards or prepaid cards.
However, make sure any prepaid card reports to the credit bureaus. The benefit to reporting is that it builds credit history, which factors into your credit scores. Of course, this only helps if you pay on time. If you make late payments, that negative information will make it a lot tougher to build solid credit.
Avoid These Credit Card Mistakes:
- Maxing Out Your Credit Cards
How close your balance is to your credit limit – in other words, your utilization rate – can affect your score. The higher your utilization rate, the more likely your score will be negatively impacted. Try to keep your utilization rate below 30%. For example, if your credit limit is $1,000, keep your balance below $300.
Maxing out your credit card can hurt your credit score. Instead of charging everything on one card, think about using other credit cards to “spread out” your debt. You can also call your credit card company and ask them to increase your spending limit, this will automatically reduce your utilization rate.
- “Credit Shopping”
If you start applying for new credit cards within a short period of time, your credit score can lose points. Why? Because with each submitted credit card application, an inquiry will appear on your report. If you have a short credit history, this could negatively impact your credit score. So, only apply for a credit card when you need it and can manage new debt.
Perfect Payment History
Any good plan for building strong credit as a college student must include paying all bills on time. It’s important to use your credit cards from time to time, it’s more important to pay, at least the minimum required payment, on time each month. In addition, make sure you’re making any required payments on any student loans.
For example, if you’re in a master’s program and take out a PLUS loan, you’re required to start making payments on a student loan as soon as you receive the funds. Making sure your credit card gets paid every month will help establish you as a credible borrower.
Avoid Making Late Payments
Making a payment late will drastically damage your credit score. A payment is considered late if it is late 30 days beyond its due date. If “life” happens, and you have less cash than needed, call your credit card company or creditor and let them know you are unable to pay the full amount. They may be able to help you or at least not report your payment as late.
You may also think that if you are late, you might as well keep the ball rolling and continue to not pay it – do not let this happen. Payments reported as 60, or 90 days late will continue to damage your credit score further. Sadly, this could deem you as uncredit worthy and will make it difficult for you to get credit offers in the future.
Monitor Your Credit Reports
Credit scores are based on the information in your credit reports, so if there’s something inaccurately reported in your credit reports, your scores could suffer. You’re entitled to a free copy from each of the three major credit bureaus once a year, so you can make sure they don’t contain any inaccuracies or show any signs of fraud. In addition, some credit cards give you free credit score access so you can track your progress.
Signing up for a credit monitoring service, like Credit Karma, can help you monitor your credit reports. The best part of a credit monitoring site like Credit Karma is that it’s FREE. The best four letter word a college student can hear. Sites like this will even help you leverage some better credit opportunities.
Report Your Rent
Dorming, living in your sorority/fraternity house, or renting an apartment near campus makes you eligible to report your rent payments. Unlike most credit offers, you do not need to become eligible or get “pre-approved” to get your rental tradeline on your credit report.
You can report your rent with RentReporters and get a special discount. If you are having trouble getting approved for credit offers, reporting your rent can help you establish a credit score that will help you get approved for best offers.