How to Build Credit as a College Student

Author: Anna Gomez, Branch Manager 09/16/2021

Establishing a solid credit history can seem challenging, but building good credit as a young person can set you up for more financial possibilities in the future. While building credit takes time, college students have several options that can help them do so safely and responsibly. Here’s how to build credit as a college student.

Become an Authorized User on a Parent’s Account

If you’re a college student, chances are you’ve never had a credit card before. You have zero payment history; therefore, the credit card companies aren’t sure if they can trust you. This makes it very difficult to apply for a credit card on your own. Becoming an authorized user on a trusted adult’s account can help you establish credit.

Make sure they have a good credit score, a safe spending limit, and are making payments on time, because their credit card use can affect you positively or negatively. 

Open a Student Credit Card

Typically, student credit cards come with a low spending limit. This makes it safer for new credit card users to spend responsibly. Before choosing yours, do your research. Look for annual fees. There are many student credit cards available without annual fees which is a benefit for a young person. Look at the interest rate. Are there current promotions for lower interest rates? Are there any additional fees? Get these answers before applying for a card.

While a student credit card can help you establish credit, less is more. Stick to one credit card. Holding on to three or four can hurt your credit score. As a new credit card user, juggling multiple cards can lead you down a slippery slope of overspending. Learn the process of paying off one card before adding more.

A Secured Credit Card

A secured credit card is a great option if you want to build or establish credit but don’t want the responsibility of a traditional credit card. Let’s say you have $500. With a secured credit card, you deposit that money as security for your purchases. A secured credit card will then give you a limit of $500 to spend on the card. The amount you deposit determines how much you can spend.

As long as you are making your payments, that money is held and secured there for the lifetime of the card. If you default on your payments, the credit card company will start withdrawing the funds you owe. As you make your payments on time, it’s reported to your credit bureau. This will help you build credit. Secured credit cards are a great way to get a feel for making payments.

Get a Cosigner

For a young person who wants to establish credit, a cosigner could be a good option when applying for a loan for larger purchases, i.e., a vehicle. A young person may qualify, but with a cosigner who has a solid credit history, you’re likely to qualify for a higher amount at a lower interest rate.

Be sure to choose a cosigner that you trust. The better their credit, the better interest rate you will earn on your purchase. The payments you make on the loan are reported under your name which can help you build credit.

Don’t Apply for Several Credit Cards at Once

Each time you apply for a credit card, your credit report is pulled which affects your credit score. This also holds true when applying for any type of loan, i.e., for a car or a home. Stick to one credit card at a time to avoid negatively impacting your credit score.

Make Payments On Time

This may be the most important piece of advice when it comes to credit. Overall, your payment history is what is reported to the credit bureau, and making payments on time will benefit you. Missing payments, or making them late, will hurt you. Even making at least minimum payments on time will help. Late payments leave a negative mark on your credit report and will also result in a late fee. That late fee can be more than your minimum payment. Making more than your minimum payment will help lower your balance, and you’ll also pay less interest. Good credit behavior will help build your credit score.

Spend Responsibly

Your spending habits can positively and negatively impact your financial future. While it may sound like fun to “charge it to the card,” it’s not wise to max out credit cards. Spending as much as your credit card allows will lower your credit score. For college students, credit cards should be used more for emergencies and small purchases. Before making a purchase, think of your needs versus your wants. Do you need the item, or do you just want it?

The purpose is to establish credit. Using your card for one type of purchase each month can be an easy way to pay it off and build credit. Consider using it for gas each month or a trip to the grocery store. Choosing the same expense each month will make it easier to pay off in full. Maxing out credit cards will defeat the purpose of building credit.

Educating yourself about how to spend responsibly can help you build credit in the long run. Your credit score can affect many aspects of your life, including your car insurance rate and even getting hired at a new job. Employers often pull a candidate’s credit score during the hiring process, so it’s important to be in good standing.

PlainsCapital has many resources to educate and assist in building credit. The PlainsCapital Secured Credit Card can be a great option for someone looking to get started.

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