Tips for Building Credit as a College Student

Introduction

From paying tuition to working on projects, taking exams, finding internships and planning for graduation, college students have plenty to think about. So it’s no wonder that credit scores don’t always make the list of priorities. But when you’re in college, that’s actually the ideal time to begin building credit.

Of course, there may be some limitations on how much you can do, depending on how old you are. So let’s take a look at some of the ways you could start on your credit-building journey as a student.

Do Student Credit Cards Build Credit?

Student credit cards often have lower credit limits than regular credit cards, but they’re great for starting out. Because they’re designed specifically for students, they usually have lower eligibility requirements, and might have benefits and perks geared to what students want or need. That could include cash back rewards on books, subscriptions, utilities, groceries, or other relevant categories.

And yes, student credit cards can help establish good financial habits and build credit from scratch. Of course, that assumes you’re using the card responsibly, which means keeping your spending to a reasonable level and making payments on time.

Since these cards are meant for students, they may only be active while you’re in school. However, if you don’t get to keep using the same card, some creditors will offer you a different card after graduation to replace your student credit card. 

The Importance of Credit to Students

The average credit score for a young person between 18 and 24 years old is around 680, which is higher than it used to be. That’s great news, because it falls in the “good” credit score range for both FICO and VantageScore.

However, this is just an average, so some students will have higher scores, and some lower. A score that falls in the “fair” or “poor” range could affect several things.

Typically, a higher credit score will mean better chances of approval for loans and credit cards, more desirable terms, lower interest rates, lower insurance payments, and better chances of landing a good job or getting a nice apartment. A lower score results in the opposite. Since your credit impacts so many areas of life, you want to start off as strong as possible.

But good credit doesn’t just happen overnight. It often takes years of proven, effective credit management to build a solid track record and raise scores. It’s important to start working on your credit history early in order to graduate with a score that could open doors, not close them, in the future.

How Can College Students Start Building Credit?

Just like any hero embarking on their journey, college students can start down the road to good credit with a bit of preparation. That includes some simple actions and proven tools.

Understand financial concepts

Knowledge is power, and having a firm grasp on some financial planning basics is a great starting point. That includes cash flow planning, tax optimization, investment strategy, and even digital financial literacy. But perhaps most important is credit education, because credit interacts with all those other areas of finances.

You can find mobile apps for budgeting, investing, and financial literacy, and some of them even gamify the concepts to make it more fun to learn. You can also read financial websites or watch finfluencers on social media, as long as you verify their claims before applying them to your own finances.

Open an entry-level credit card

Having a credit card helps you build credit history, but it’s important to choose practicality over emotional impulse. Instead of applying for a top-tier card with flashy perks (and a hefty annual fee to match), it’s best to focus on starter credit cards.

That could include student credit cards or credit-building cards, which are easier to qualify for. To prevent unnecessary hard pulls on your credit, always see if you pre-qualify before applying for a card, and spread out applications by several months.

Become an authorized user

In order to be approved for a credit card, students over 18 but under 21 years old usually need to show proof of income or have an adult co-signer — which isn’t as common an option as it once was. So instead, many young adults become authorized users on their parents’ accounts.

Having your own credit card on an adult’s existing account can help you learn how to manage credit. It’s kind of like having a credit safety net so you don’t end up in over your head. But not all creditors report payment history for authorized users, so it won’t necessarily show on your credit report or help you build credit.

Use credit only for essentials

Getting a credit card might be the first step towards building a stronger credit score, but it’s how you use that card that helps determine your financial future. Aim at spending less than 30% of your credit limit, which is what experts recommend as a good credit utilization ratio.

To prevent racking up debt, focus on charging only small expenses, like buying groceries or filling your car with gas. And then make it a point to pay off the full balance each month. That’s not required to build credit — you just need to make your minimum payment on time. But paying the full balance keeps your utilization low, and lets you avoid paying interest by leveraging your grace period.

Make the most of rewards

If your card offers points or cash back rewards, it’s possible to get a rebate of sorts on your spending. You can even maximize your credit card rewards by being strategic about what you purchase. But the caveat here is that if you carry a balance, chances are your interest charges will eat up the rewards and you’ll end up paying more instead of less. 

It’s fine to look for the best rewards structure you can qualify for, but rewards are just the icing on the cake. It’s far more important to find a card with a decent credit line, fair interest rate, and reasonable fees so you can focus on what matters most — building credit.

Pay on time, every time

The one consistent factor with the biggest impact on your credit score is your payment history. That single piece of the puzzle is worth more than a third of your credit score, for better or for worse. That means making payments on time, every time, is one of the best things you can do for your credit. And missing a credit card payment is potentially one of the worst, since it can stay on your credit report for up to seven years.

You can avoid late or missed payments by taking advantage of online tools and mobile app features like email alerts, push notifications, calendar entries, and AutoPay. If you set at least your minimum to be paid automatically each month, you can easily choose to pay extra when you want to clear off your balance or make a bigger dent.

Bottom Line

Building good credit is a marathon, not a sprint. You need credit to build credit, and how you treat that credit makes all the difference in the world. The thing is, there’s really no finish line in this race. We’re talking about a lifelong journey rather than a single destination.

College students are in a perfect position to start building credit for life after graduation. And the earlier you start practicing good credit habits as a student, the stronger your score may be after you toss that tasseled cap into the air.

If you need a starter credit card and would like to earn rewards on eligible purchases, you do have options to choose from — just make sure you pre-qualify before submitting an application.