How do I build credit as a student?
Building good credit is a must. We know why credit is important because it helps you qualify for loans, auto insurance, apartment leases, and other credit down the road. But as a student, you typically don’t have a mortgage, or a lengthily credit history, so how can you be proactive about building your credit now? Consider these tips :
1. Become an authorized user on your parents’ account.
If your parents already have an existing credit card account, they can add you on as an “authorized user.” This is a good option to ease into credit building, as long as your parents are responsible credit card holders and are okay with you “piggybacking.” You can make purchases as an authorized user as if the card was your own, but paying the charges legally remains the primary cardholder’s responsibility. Your parents or family member will still be able to monitor what you spend, but this can be a way for students to get experience using a credit card without trying to apply for one on their own.
2. Open up your own credit card and use it for occasional, small purchases.
Since responsible and on time payments help build your credit history, having the card alone won’t build your credit, you have to actually use it. Sounds scary right? But the key point is to only use the card for purchases you can afford –like a tank of gas, or a trip to the grocery store. After you use the card to complete your purchase, pay it off immediately. When you apply for the card, make sure you are not agreeing to open an account with hidden annual fees, or sky-high interest rates. If you are unable to get a credit card on your own, you may need to assign a co-signer.
3. Open up a secured credit card.
This is another safe way for students to build credit. Secured credit cards require a “down payment” or security deposit that becomes your credit line. For example, you can get a secured credit card with a credit limit of $200 if you put down up to that amount from your checking or savings account. This is a great concept because it prevents you from spending money that you don’t have. We recommend reaching out to your personal bank or credit union if you’re interested in opening a secured credit card account.
4. Practice good credit habits.
Once you get your first line of credit –whether it is a credit card or student loan, you will need to make sure you manage that wisely. Paying off your balance on time and in full is the best way to show lenders that you are responsible with your debt payments. Payment timeliness is a big factor in how they calculate your score, in fact, it makes up about 35% of your score. Also, be cautious of opening too many accounts at one time. This might look like risky behavior to the lender because you have a short credit history and don’t want to appear credit reliant. When it comes to your student loan payments, never miss a payment (even if it’s a day late!). Be sure to utilize the auto pay option to save 0.25% off the interest on your loans and in return, gain piece of mind that your student loan payment will always be on time.