In many high schools, including my own, there’s no class that teaches you how to build credit and keep it healthy. In fact, roughly 69 percent of college students felt underprepared by their respective high schools to face the financial challenges of real life, according to a Bank of America survey.
While many of us had a late start financially, there are ways you can build credit as a college student.
1. Check Your Credit Report
Even if you’ve never had a credit card or loan before, it’s good to check your credit report as a first step to establishing and building credit. This way, you can make sure that your identity hasn’t been stolen, as well as assess the steps you’ll need to take toward obtaining a high credit score.
Use AnnualCreditReport.com to get free copies of your credit report. You’re entitled to see them once yearly for free. If you haven’t had your identity stolen and you’ve never had a credit card or loan, you likely won’t have much of a credit history. No credit is better than bad credit, so you’re off to a good start.
2. Use Your Credit Card
This may sound obvious, but once you pick out your perfect card and get approved, use it, within reason. Payment history is the highest weighted factor in all credit scoring models (35 percent). For this, you have to have payments to have a payment history.
Then promptly pay the balance off each month. As a result, you’re not spending money you wouldn’t otherwise spend, but you’re still building your credit by establishing a perfect, on-time payment history.
Then, after you’ve used your card for a few months and have established yourself as a responsible credit card holder, see if you can increase your limit.
“Call the credit card company and ask for a credit limit increase after six months of on-time payments,” says certified financial planner Samuel Rad. “You want to regularly ask for these in order to have the highest credit limit possible.”
“Remember credit reporting agencies give high ratings when your usage ratio is low. This means that the higher the credit limit, the lower your credit utilization ratio is,” Rad adds.
As such, keeping your balance low and the amount of credit available high will give you a low utilization ratio, thereby increasing 30 percent of your FICO score. That combined with a solid history of timely payments can jumpstart your credit rating.
3. Lengthen Your Account History
If you keep within your limits and make payments in a timely fashion, you’ll start to build credit slowly, but surely.
First, consider becoming an authorized user on an older credit account.
The length of your credit history amounts to 15 percent of your FICO score, and when you have someone with a longstanding credit line add you to their account, your credit history will “increase” as far as the three credit bureaus are concerned. As a result, your score will jump.
Ask a family member or a friend if they will add you to their account. Of course, you’ll want to ask an individual who is responsible with their card. Otherwise, their bad decision-making could drive your score down, as well.
How to Build Credit as a College Student: The Bottom Line
As long as you maintain your savings and a job while you’re building your credit, you’ll be on your way to financial freedom throughout college and after you graduate.
via Plinqit