How to Build a Credit History for College Students
It used to be that on any given day, college students were inundated with offers for credit cards. Free food, T-shirts, Frisbees and other perks were offered in exchange for applying for a credit card. As a result, many graduated with considerable credit card debt in addition to student loans. In 2010, the federal government passed new laws tightening the rules for college credit; however, as a result, it has become more difficult for students to build a solid credit history. However, when you head off to school, with some planning and smart decision making, you can get your adult life off to a good financial start.
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Instructions
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Become an authorized user on your parents’ credit card. As an authorized user, you are responsible for charges and the account history appears on your credit report, and you are more likely to use the account responsibly if your parents are reviewing the bill each month.
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Apply for a credit card. If you are under 21, federal law requires that you have a cosigner on the card or provide proof of income to pay the bill. Seek a card with a low interest rate and low fees.
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Open a secured credit card account. With a secured account, your credit limit is limited to the amount of money you deposit, typically $500 or less. The card helps you build a positive credit history and qualify for traditional credit cards with better terms and rates.
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Limit the number of credit accounts you apply for and open. Each inquiry into your credit history lowers your overall credit score by as much as five points and multiple inquiries in a short period raise red flags to lenders.
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Use credit responsibly. Save your credit card for emergencies, keep the balances low and only charge what you can pay back in a month or two. If you have to carry a balance, pay more than the minimum each month.
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Make a large purchase for school using credit, if the terms are favorable and you can pay the bill within a short time. For example, a computer retailer may offer a no-interest period on computer purchases if you open an account. Purchase the item with credit, make regular payments and repay the balance before the term is up to build a positive credit history.
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Pay all your bills on time. Some lenders are looking at expanded credit scores, which include your payment history with utilities, rent and other companies. A late rent payment could show up in your expanded credit score and affect your ability to acquire more credit.
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Avoid letting any accounts go to collections. If your roommate flakes out on the phone bill, pay it yourself and get the money from him, rather than ignoring the bill or carrying a balance. Collection accounts can harm your credit report and score.
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Limit the amount of student loans you accept. The more you borrow, the more you will have to repay after graduation. Carrying large student loan balances can lower your credit score because you have increased the total amount you owe. Borrow only what you need for school, not enough to buy a car or other items.
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References
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