College students have a big disadvantage with credit as they likely do not have a credit score and are starting from scratch. As students continue to gain and further their independence, they also take on an abundance of responsibilities, many of which are financial. A lot of these financial responsibilities require having a good credit score.
Getting your initial credit started can be a challenge. To get started, use one of these three credit-building strategies:
1. Apply For a Secured Credit Card
A secured credit card is backed by a cash deposit you make up front. This card is not meant to be used forever, just until you have enough credit history to get an unsecured card.
2. Have a Cosigner
In a time when you’re gaining independence and truly becoming an adult, don’t forget about your parents/guardians. Having a cosigner will allow you to get a loan or a secured credit card. Also, due to the Credit CARD Act, people under the age of 21 now must have a cosigner or show proof of independent income. If this applies to you, having a cosigner isn’t just a good idea, it’s mandatory.
With that being said, make sure both you and the cosigner knows what being a cosigner entails.
3. Become an Authorized User on Someone Else’s Credit Card
Again, this is an instance where your parents/guardians can be very helpful. Being an authorized user has several benefits:
- It gives you access to a credit card and allows you to begin building a credit history.
- It allows for parents to monitor your spending to ensure it does not get out of hand.
- Credit card payment liability does not fall on you. With that being said, you and the primary user should come to a fair payment agreement, just in case this should happen (even though you aren’t legally obligated to do so).
How To Build Good Credit:
Now that you’ve established a strategy, it’s time to begin the process. Below are tips and methods for building your credit score:
Make 100% of your payments on time, including credit cards, utilities, and/or your cell phone.
Keep your utilization levels low (balance vs. credit limit).
- Your balance is the current amount you owe on your account. Your credit limit is the amount of credit you are able to spend up to.
Start with one card. Do not open too many new accounts.
- You may get a nice discount on purchases at various retail stores, but doing this too many times will negatively impact on your credit score.
Pay your credit card balance in full each month.
If you need to carry a balance, pay it off as quickly as possible.
- Emergencies happen, you need to ensure you’re financially secure.
- Pay off a big purchase over a few months. Spread out the impact, don’t drain your account all at once.
- Do not continue to put more onto the card.
Keep accounts open / let your accounts age.
- The age of your credit history essentially shows the length of your experience with the credit system. This is meant to speak to your experience levels and responsibility when it comes to credit cards, loans, and other forms of borrowing. The longer your account has been open, the less perceived risk.
Check your credit report annually for possible errors. You are entitled to a free credit report every year (https://www.usa.gov/credit-reports) at annualcreditreport.com from the three rating agencies (Transunion, Experian, Equifax).