No Credit History? No Problem. How to Build Your Credit in College
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What if you were punished simply for focusing on your education?
For many college students, this is exactly what happens when they need a credit card or loan. Once the lender realizes they have little to no credit history, they get rejected. At the same time, it can feel impossible to build your credit up while you’re taking so many classes.
Fortunately, you don’t have to compromise your education to build your credit. Keep reading to discover our comprehensive guide for building up your credit while you’re still in college!
Authorized User Status
If you’re like most college students, you get some financial help from your parents every now and then even after you’ve moved off on your own. And if they are comfortable with it, your parents can make one easy move that helps you build up your credit.
Your parents can add you as an “authorized user” to one of their credit cards. This lets you have your own card that you can use when you need it, but your parents are still the ones who make payments (so try not to spend too much).
This is a real “best of both worlds” option for you because your credit will build the entire time you are an authorized user. In fact, it will build even if you spend nothing at all, letting you passively improve your credit while you focus on classes.
As a courtesy, you should make sure your parents understand that they will still be responsible for making payments for anything that you have effectively charged in their name. This is typically a non-issue if you aren’t charging things left and right, but it can sometimes be a nasty surprise to parents of authorized users who didn’t realize what they were signing up for.
Get Federal Loans (No, Really)
It might sound crazy to pursue federal loans as a way of building up your credit. But if you do it the right way, this is one of the simplest methods of building your credit.
While you’d likely get rejected for private loans (they require a credit check), you can qualify for Federal Stafford Loans simply by completing the FAFSA. You will then be offered the maximum amount based on how long you’ve been in college, but you can accept a lower amount if you don’t need that much money.
How does this help build your credit? Every single payment you make towards your loans helps strengthen your credit history. You should only borrow an amount that you have the money to make the loan payments as they come due, so you will get all the benefits of credit building without missing payments and doing damage to your credit history.
Get A Store Card
You only have one credit score. However, there are plenty of different ways to increase that score, and one method is to seek out store credit cards.
These are the special credit cards offered by various retail stores. Such credit cards only work for that store and typically feature a high-interest rate (more on that in a minute).
Generally speaking, it’s easier to qualify for these cards than traditional credit cards or private loans. And so long as you make regular payments on this card, your credit will build. To improve your odds of qualifying, you may want to seek a card from a store in which you are a regular customer.
As with just about any card, make sure you pay it all off each month or pay as much as you can. With these high-interest rates, your small purchases can get awfully expensive before you know it if you only make minimum payments.
Secured Credit Card
When most people talk about credit cards, they are talking about unsecured credit cards. These are cards where the only real limit is your credit limit and you don’t have to pay any money to get access to the card.
A secured credit card, however, is like a cross between a debit and a credit card. You have to put down a certain amount of money (typically at least $100) to get your card. And the money you put down will be part of (if not all) your effective credit limit.
In this way, secured credit cards function a lot as debit cards do. But because your secured card activity is still reported to the major credit bureaus, these cards are a great answer to the question of how to build credit when you have none or if you are attempting to reestablish credit after having derogatory information on your credit history.
And they are extremely easy to qualify for thanks to the cash requirement. As a bonus, that cash requirement keeps most users from spending too much money from month to month!
Find A Cosigner
Earlier, we discussed becoming an authorized user on your parent’s credit card. The only real downside to that is that at the end of the day, you don’t really have a card of your own. Instead, you must effectively borrow everything in their name.
If you want a card of your own but your credit is too poor to qualify, there is another alternative. You can ask a parent or other trusted person to be a cosigner on your credit card.
In practice, this works a lot like getting a cosigner for a loan. Having someone else (preferably someone with good credit) sign the application can significantly improve your odds of qualifying.
As with becoming an authorized user, though, it’s important that you let the other person know what they are (quite literally) signing up for. While you are the one responsible for the card and payments, your cosigner will be liable for any payments that you miss.
Furthermore, the debt and activity from this credit card will also affect the cosigner’s credit. Be careful, you can destroy your cosigner’s credit history if you fail to meet the obligations. That is why it is imperative to find a cosigner who trusts you. (And, of course, to act responsibly with the credit card after you get it!)
Apply for Student Credit Cards
Still wondering about how to build credit with no credit history? For college students, the answer may be as simple as applying for student credit cards!
As the name implies, these are credit cards designed especially for college students. Because of that, they are typically easier to qualify for than a standard credit card, making them a natural choice for someone with no credit.
In some cases, student credit cards may offer perks that students can take advantage of. These may include perks for getting good grades or more general benefits for making your payments on time each month.
Aside from being easier for students to qualify for and the aforementioned perks, these credit cards function exactly as a typical card. That means it’s entirely in your name and you can use it anywhere for an amount up to your credit limit.
Much of our guide so far has been focused on helping you qualify for a credit card in the first place. Once you have a card, though, it’s important to understand the best ways to continue building your credit throughout college and beyond.
Always Pay On Time
We’ve alluded to it a few times now, but the best advice we can offer for your credit card is also the simplest. You need to make every payment on time every month.
Any missing payments are reported to the credit bureaus and will reflect very harshly on your overall credit score and report. Even late payments or payments lower than the minimum will have a negative impact! Bad marks on your credit last a long time. In fact, it takes 7 years for such marks to fall off your credit report. Not only can this happen to you with your open credit lines, but a negative mark can come from not paying your utilities, rent, or even medical bills and also take 7 years to fall off your credit report. Utility companies and landlords are an excellent source of credit references when applying for loans and credit cards even if your credit report shows no history with them.
The best way to make all your payments on time is to never borrow more than you can easily pay back. If you can pay everything you owe at the end of the month, you’ll have great credit and may be able to take advantage of card offers such as cashback on your purchases.
If you can’t pay it all off at the end of the month, make sure you have a game plan for paying it all off in a timely manner. Whatever you do, don’t just stick with minimum payments each month!
Don’t Spend Too Much
It’s important to not spend too much if you want to easily pay everything off. But there is another reason to avoid too much spending if you’re trying to build up your credit.
Having too much debt can reflect poorly on the “debt to income” portion of your credit report. And as a student, you probably don’t have a lot of income. If you’re growing your debt without growing your income, you may be hurting your credit instead of building it.
On top of that, most students like to keep credit cards in case there is an emergency. But you can never borrow more than your credit limit. If you’re close to your limit due to frivolous purchases, you may not have enough money available in case of an actual emergency!
With that being said, you should also avoid applying for too many credit cards, especially at once. While it may seem tempting to have a lot of potential credit, opening a bunch of new accounts may seem like a red flag to new lenders who will be skeptical about your ability to pay everything back.
Regular Credit Monitoring
We’ve talked a lot about your credit score, and your ultimate goal is to raise that score. But how will you know if you have been successful or not?
There are multiple free credit monitoring services that you can sign up for. Once you have a credit card, it’s important to enroll in one of these services so that you can keep an eye on your credit.
In addition to giving you a raw credit score, these monitoring services will also show you the different factors that have affected your score. Once you understand these factors and where you stand with each one, you can begin working on making improvements and raising your score.
Credit monitoring also lets you discover if there are any mistakes on your record. Maybe you paid off old debt and your report shows that you still owe money. Once you know about this error, you can contact the original lender and get them to sort things out with the credit bureaus.
Finally, credit monitoring lets you watch for any identity theft. If someone is taking out credit in your name, it’s important to find out and try to stop them as soon as possible!
No Credit History? No Problem!
Now you know how you can build credit as a college student, even if you have little to no credit history. Building a good credit history will provide you with the ability to purchase a home with a smaller down payment and to obtain auto loans at lower interest rates. A good credit history indicates to lenders that you are a low-risk borrower who will pay debts as agreed. Now is a good time to start building your credit history and we can help you save money while you do it.
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