How to Build Credit as a College Student

While the rhetoric surrounding credit has generally been negative with opponents of using credit cards citing debt as a primary concern, many major decisions revolve around having a good credit score. Most banks use credit scores as a major deciding factor when sanctioning home and auto loans, so anyone looking to purchase a large asset in the future ought to consider the prospect of building a strong credit score. 

Introduction to Credit and Credit Scores

So, what is credit? Well, credit is essentially the ability to borrow money with the understanding that it will be paid back at a later time. Any loan, including credit card loans, fall under the umbrella of credit and can influence one’s credit score, which essentially measures an individual’s ability to pay back the money they borrow. A credit score typically ranges from 300 to 850, with 300 representing the poorest possible credit score and 850 representing the ideal credit score. One’s credit score tends to be based on their payment history, amount of money owed, length of credit history, and types of credit used. Ultimately, banks use credit scores to evaluate whether a loan applicant will be able to pay back the loan with interest based on their past financial history. 

How to Get a Good Credit Score

In most cases, the credit-building process begins after a student turns eighteen; however, this fact is not necessarily true. Students above the age of thirteen can open a savings or checking account jointly with their parents. While these accounts do not necessarily impact credit directly, opening an account to save and invest money gives students a strong foundation for paying bills on time in the future, which enables them to build their credit scores in the near future. Apart from opening up a bank account, students can also find a job in order to provide lenders with security that their money can be paid back. Employed individuals generally tend to be favored over unemployed individuals in terms of lending because they are more likely to pay their balances on time.  Once a student turns eighteen, they can apply for their own credit card or become an authorized user on their parent’s credit card. Usually, students with no previous credit history are not eligible to apply for a traditional credit card, but they can use secured credit cards, where they provide a deposit to their account and the deposit amount serves as the credit limit. Discover It is one of the most popular examples of a secured credit card that is usually directed towards college students. 

Maintaining Good Credit

By using credit cards responsibly, college students can lower future interest rates, have higher credit limits, reduce insurance premiums, and increase rental approvals. Timely payments are the most critical aspect of maintaining a good credit score. Individuals can set up automatic payment systems in order to ensure that they do not fall behind in terms of payments. Furthermore, they can use reminders and organizational skills to ensure that no bills go neglected. Instead of taking steps specifically to earn a high credit score, if individuals act responsibly with their finances, they will earn a high credit score as a byproduct of responsible decision-making.  As a result, college students could begin to build credit early so that they are eligible to partake in certain activities such as buying a house in the future. While there certainly are risks to using a credit card in college, including irrational decision-making, one can limit the risks of being in debt by having a part-time job and using secured credit cards to limit their credit caps. If used responsibly, credit cards offer many rewards such as cashback, airplane miles, access to lounges, etc, in return for spending money on credit cards and paying it back.  When college students start to build credit, they also intrinsically gain other benefits such as making better decisions in general. The impulse purchases that characterize college life start reducing in number when students keep their future in mind when making financial decisions. Additionally, students start realizing responsibility and taking accountability for their actions when they are exposed to credit scores and the complexity surrounding making financially feasible decisions.  All in all, credit serves as an integral tool in preparing students for future success by enabling them to be able to borrow money to make larger purchases in the future. The short-term benefits credit card companies and banks offer also make credit a financially beneficial option in the short run. When considering one’s future, if purchasing an asset without having the necessary capital up-front is an idea students may consider, starting early to build credit could be a viable strategy. Using debit cards exclusively or refraining from using credit at all significantly reduces an individual’s short-term purchasing power, which hinders their ability to make large purchases. Therefore, it would be beneficial to a student to explore different ways that they could build credit while in college and beyond.