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How to Build Credit in College
While I was reading a thread at The Consumerist on ways to get started with credit, I found myself repeatedly shaking my head at the number of extremely questionable ideas that people were coming up with. Buying CDs and using them as loan collateral simply to improve your credit seems like financial suicide to me.
Then I came across this comment from “Eyebrows McGee”:
Incidentally, if you are going to college, you can get your first credit card and buy your textbooks on it from amazon.com. You usually save a little on the textbooks over getting them at the bookstore, amazon delivers to your door so you don’t have to carry them (important to me on a walking campus!), and you can then pay the card off right away with your books money.
By the end of four years, you’ll have some pretty reasonable credit history built up. By the time I graduated, having never charged more than $350 on the card, using it basically twice a year, and never carrying a balance, my $1200 credit limit was up to $8500 and I had enough credit history to go out into the real world of non-cosigned apartments, utilities, and eventually mortgages.
The trick, of course, is not to fall into the college student trap of abusing credit cards.
This is a brilliant idea for all new college students, in my opinion. Student credit cards used for the sole purpose of buying textbooks allow students to save money by buying their books online instead of from the campus bookstore. Plus, if you just use the card for this purpose and then quickly pay off the balance with a check, you’ll build up solid credit.
Let’s take it a step further. Let’s say you are going to buy your books from amazon.com and don’t have a credit card. Let’s also say that you’ll have to spend $350 a semester on books for eight semesters. If you apply for the amazon.com Visa, you can save $30 off of your first order. Plus, with each dollar you spend at amazon, you earn three points in the program; once you reach 2,500 points, amazon issues you a $25 gift certificate.
So, the first semester, you’ll immediately save $30 on your order. You’ll also earn 1,050 points each semester. This means that after your third, fifth, and eighth semester orders, you’ll receive a $25 amazon gift certificate that you can use to reduce the book price each semester. All told, using the amazon credit card could save you over $100 on something you’d do anyway.
The trick is to make sure that you won’t use the card for anything else. It might make sense for a college student to leave the card with their parents so that there’s no temptation to start charging things up. Then they can use the card during breaks to order their books.
If the student is capable of paying for their textbooks immediately, this is a strong way of building credit. Once you show that you regularly pay off the card, the credit card company will automatically lift your credit line, thus improving your credit score. By the time you’re done with college, not only will you have saved significant money on textbooks, but you will have also built substantial credit for yourself without any of the college student credit card mistakes.
My niece will be entering college in the very near future. She has no established credit at this point, so I think I will recommend this plan to her.