How to Build Good Credit in College

College student studying

As a college student, you have plenty on your mind already. But you should be thinking about your credit, too. Photo: Francisco Osorio

The typical college student has a lot to worry about – paying for school, classwork, holding down a job, and of course that little issue of figuring out what to do with your life.

A good credit score might not be too high on the priority list for most college students. In fact, the average credit score for someone 18 to 24 years old is 630, according to CreditKarma, and that’s not great. Credit requirements vary by lender, but a score below 650 is generally considered bad, according to USA Today, while a good credit score is 730 or higher.

Not to pile one more thing on the list, but your credit report and credit score will play important roles in your life, and college is the perfect time to start improving them.

Start Thinking About Good Credit in College

Your credit report is going to determine a lot for you. The misconception is that you’re only going to need good credit way down the road — such as when you’re ready to buy a home, which can seem like an eternity away when you’re in college.

However, your credit can impact you right now, determining your interest rate for student loans. Plus, if you’re thinking about consolidating your loans after graduation, a good credit report could land you a better interest rate.

Employers can look at your credit report and score when deciding whether to hire you. And if you’ll need a car to get to that job, you’re going to need a good credit history to get an auto loan.

That post-college apartment? Odds are your potential landlord is going to look at your credit report to see whether you’d make a responsible tenant. Or the landlord may require an additional security deposit if have no or poor credit.

Besides those immediate needs for good credit, building a solid credit history early is going to give you a jump start down the road. According to FICO, 15% of your credit score is based on the length of your credit history. So the earlier you begin building your credit, the better off you’ll be.

The Dos and Don’ts of Credit Cards in College

Getting a credit card is one of the quickest ways to build credit in college. But here are some dos and don’ts you need to know:

DO Choose a Card That’s Right for You

Used properly, credit cards can have a lot of benefits. Many offer some type of fraud protection, for example, unlike a debit card. Before you apply, research what is offered to know what’s best for you. Here are a few cards to consider:

  • Discover it® chrome for Students allows you to pay your bill up to midnight the day it’s due, so it could accommodate your hectic schedule. You won’t have to pay a late fee on your first missed payment, which is a benefit for those who aren’t used to paying a credit card bill every month. Also, your FICO® Credit Scores for free on statements & online every month so you can monitor how your credit is improving.
  • Journey® Student Rewards from Capital One® is great if you plan to study abroad since there’s no foreign transaction fee (the Discover Student Card doesn’t have one either). Plus, earn 1% cash back on all your purchases. Pay on time to boost your cash back to a total of 1.25% for that month and apply it directly to your student loans.
  • Bank of America® Cash Rewards Credit Card You’ll earn 1% cash back on every purchase, 2% at grocery stores and 3% on gas for the first $2,500 in combined grocery/gas purchases each quarter. Get a 10% customer bonus every time you redeem your cash back into a Bank of America® checking or savings account
  • U.S. Bank College Visa® Card sends personalized mobile alerts with upcoming payments and balance.
  • Citi Thank You® Preferred Card for College Students will search for a lower price on items you bought for 60 days, and if a better deal is found, you can get a refund.

DON’T Apply for Multiple Accounts at Once

This can lower your credit score since new credit inquiries make up 10% of your score. Instead, wait for a card with benefits and perks you can use, no annual fee, and a low interest rate.

DO Pay Off Your Balance Every Month

Just because you have a credit card doesn’t mean you should live outside your means. You should only be charging everyday purchases you’d be making anyway, such as groceries, gas, cellphone bill, cable bill, or anything else you were already planning on buying.

Create a budget based on your income and expenses and stick to it. Pay your balance off every month to avoid debt accruing, paying interest, and hurting your credit. In 2013, the average college graduate left school with $3,000 in credit card debt, according to CNN Money.

DON’T Let Your Card Sit in a Drawer

To build credit, you have to use your card. Simply having a credit card won’t build your credit alone. You need to have a payment history, so make a small purchase every now and then and immediately pay if off.

DO Make Your Payments on Time

This is imperative, since 35% of your credit score is based on payment history. Consider setting up automatic payments to avoid a late payment. Set up an alarm on your phone, write it on your calendar, and enroll in text and e-mail reminders if available.

DON’T Open and Close Accounts Frequently

Take time to research benefits to each credit card so you’re not tempted to jump around and open a new account. It’s recommended that you keep your oldest credit card open to show a long length of account duration, which benefits your credit. Closing an account may shorten your credit history and reduce your available credit, both of which can lower your score.

DO Consider Other Types of Cards if You Can’t Qualify for a Traditional Credit Card

The Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the CARD Act, makes it harder for anyone under 21 to apply for credit without a co-signer or proof of a full-time income. However, there are other options for a credit card if you can’t qualify for a traditional one or get a co-signer.

A secured credit card is offered through banks and is associated with a savings account you have. You put a specific amount in a savings account associated with the card, and that amount is your credit limit. Often credit cards from a retail store or gas station have different restrictions, so they might be easier to acquire.

DON’T Let Your Balances Grow

Regardless of the type of card you have, keep your balance something you can pay off every month to avoid paying interest and accruing debt. Thirty percent of your credit score is based on the amount owed, so those big balances are only going to hurt you in the end.

DO Apply for a Credit Card at Your Bank

Besides a secured credit card or a retail or gas credit card, another option is applying for a credit card with a bank where you already have a checking or savings account. If you have a savings and checking account along with a history of not letting your balances go below the account minimums or getting overdraft fees, you might be more likely to get approved.

Other Ways to Build Credit in College

If you don’t have any income in college, would be unable to pay the balance on a credit card, or simply can’t get approved for one, there are other ways to build your credit in college without credit cards:

Become an Authorized User on Your Parents’ Credit Cards

If you don’t want to or can’t open your own credit card account, consider asking your parents to add you as an authorized user on their cards. If they have good credit, you’ll be piggybacking off their positive credit history, which can boost your score.

Choose Responsible Roommates

If you decide to live in an off-campus apartment, choose responsible roommates you can trust. Since your name is on the lease and you’re paying utilities together, it will hurt your credit if they’re missing payments or not turning in the rent on time.

Pay Your Bills on Time

Just like with credit cards, this is imperative. Missed or late payments from your Internet, cable, or cellphone bill can damage your credit report. Even things like doctor bills, unpaid library fees, parking tickets, or school fees not covered by loans could get sent to collections and harm your credit.

Don’t Co-Sign for Your Buddies

There are plenty of ways to be a good friend in college, but co-signing for anything should not be one of them. The second your friend misses a payment, your credit is negatively impacted. Regardless how responsible a friend is or how secure their job seems, you can’t control if they stop paying down the road.

Check Your Credit Report

Keep an eye on your credit. Annualcreditreport.com allows you to check your credit report from each of the three main credit reporting agencies once per year. Space it out so you’re checking each report once per year.

Monitoring your report is essential in building a good credit history. You might see an account you didn’t open or other suspicious activity that turns out to be identity theft. The sooner you report this, the sooner you can have it removed from your report and improve your credit history.

Besides identity theft, it’s also a good idea to monitor for mistakes. There could have been a glitch in a company’s system that reported your payment as late when it really wasn’t, for example.

Reduce Your ‘Hard Inquiries’

As mentioned above, applying for several new accounts at once can harm your credit. If you’re looking for a private student loan or if you’re shopping for a car, do your searching within a 14-day period. Anything within this time frame will count as one inquiry and harm your credit less.

Protect Your Identity

Even if you know the people you live with very well, you don’t have control over their guests when you’re not around. Keep your Social Security card, bank account information, driver’s license, and other important documents in a secure, safe place that people can’t access.

When using a public computer or an unsecured wireless network, as is common in college, avoid paying bills, shopping online, or other activities that could leave you vulnerable to someone using your accounts or information to open their own account.

Keep Your Information Up to Date

You may move multiple times while you’re in college. Any time you move, be sure to change your address on all your accounts and with any bills you pay. You can also have your mail forwarded in case something slips by you. Bills going to the wrong address could mean missed payments, late fees, and a negative result on your credit.

Besides changing your address when you move, also be sure to cancel all your accounts associated with that address or remove your name from any accounts shared with roommates, such as utilities, cable, Internet, and of course, the apartment lease.