College is expensive. Can you put that expense to work to build your credit score?
The answer depends on how you pay and when you’re paying the bills. There are also other ways to build credit during college, so you’re not relying on your tuition payments alone.
Getting your first college tuition bill can be a rude awakening. You probably knew it would be expensive, but maybe you didn’t realize how expensive.
Seeing that big number might have you thinking: what if paying off this bill could help my finances? Does paying college tuition build credit?
Sadly, simply paying your tuition bill won’t necessarily affect your credit. And the size of a bill doesn’t make much difference in how much it affects your credit score.
You might still be able to use your tuition payments to help build your credit, though. There are also several less expensive methods close at hand that can help you build a credit history during college. Take a look at how paying for college affects your credit score and what other options you may have to build credit.
If you’re like most college students, a lot of your tuition money is coming from student loans. Federal student loans often don’t require a credit check for approval. Private student loans, like those issued by a bank, usually do check your credit score. Many students have a co-signer, like a parent or relative, to help them get the loans they need to pay for school.
Student loans act similarly to car loans or home loans, except that you don’t pay them until after graduation. Since you’re not paying off any debt while still in school, your loans don’t do much to your credit score until you graduate.
Once you graduate, you start making payments towards your student loans. Those payments can help you build credit. The more on-time payments you make, the better chance you have to improve your score over time. However, these payments won’t help your credit while you’re still at school.
You can put your loans to work for you before you graduate by paying them early. If you start making loan payments while still in school, those payments go towards your credit history.
The biggest drawback of this method is you’ll need extra money to throw at the loans. A lot of students just don’t have the extra cash to spare – but if you do, this is a good place to start building credit.
A surprising number of colleges take credit cards for tuition payments. Paying your tuition with a credit card certainly affects your credit. Putting thousands of dollars on a credit card could be a really bad idea.
On the other hand, if you only have a few course fees or relatively low tuition, paying by credit card could be an easy way to boost your credit history. You can also use a credit card to pay for some of the lower fees colleges charge, like annual student activity fees, student health insurance fees or a campus parking pass. You’ll want to pay off those credit bills as soon as possible so you avoid carrying a balance with high interest rates – undoing any benefit of using a credit card to build your credit!
The main hurdle to paying for college with a credit card is getting a credit card. You generally need credit to get credit. If you plan to pay on a credit card to build your credit score, you might find yourself running in circles.
One way to get a credit card if you don’t have credit is to apply for a secured credit card. This is a type of credit card that uses a cash deposit to guarantee your credit card payments. Secured credit cards are available to those with little or bad credit because of that deposit – if you can’t make payments anymore, the credit card company just falls back on the deposit money to cover it. But if you make on-time payments, you’ll eventually get your deposit back.
Most secured cards, however, have very low credit limits. It’s unlikely you’d be able to cover a large tuition bill with the available credit. You also don’t want to max out your card, as this increases your credit utilization.
What is credit utilization? Credit utilization is just the amount of your current balance compared to your credit limit. For example, if you have a $500 limit and spend $250, your credit utilization is 50%. It’s recommended to keep your utilization under 30%.
Paying your tuition probably won’t help you build credit while you’re still in college. But that doesn’t mean there’s no way to build credit at school. Instead of focusing on your tuition payments to build credit, look at smaller expenses. The size of your loan doesn’t make as much difference to your credit as on-time payments. Even if you get a small loan or use a low-limit credit card, good payment history should help your credit score.
In the end, does paying college tuition build credit? It does if you pay with a credit card, and then pay that credit card off. Student loans can eventually help you build credit too, once you start making payments on them.
Relying on your tuition payments to build credit in college may not be the best strategy, however. There are other ways to build credit while you’re in school that are less expensive and less risky, like a credit builder loan.