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How to Build Credit as a College Student

Many choices you make in college can have a big impact on your financial future. Your major plays a role in what job you can get, and how much you can earn at that job. The school you choose determines how much you’ll pay in tuition and whether you’ll need student loans.

All these decisions you make can help you build a credit history now so you can leave college with the advantage of a good credit score when you enter the workforce.

In a Nutshell: College Students and Building a Credit History

If you want to qualify for private student loans, buy a new car or buy a house someday, you’re probably going to need a strong credit history. When you’re in college, it might seem impossible to start building credit.

You might not have a lot of disposable income right now. The last thing you want is to rack up unnecessary debt from credit cards or loans. If you’re smart with your money, and credit accounts, you can build credit from scratch throughout college.

Best Way for College Students to Build Credit

There are a few ways to build credit while you’re at school. That means it’s likely you’ll find a method that works for you, as well as some options that may not apply to you.

Regardless of how you do it, building credit takes time. If you’re starting with no credit, you might not even get a credit score for a few months. Let’s take a look at how to build credit as a college student.

Secured Credit Cards

A secured credit card looks and acts just like a “normal” credit card. You’ll be able to use it to buy things like groceries or gas and you’re expected to pay back the money you spent each month. The main difference between secured cards and normal cards (called unsecured cards) is a cash deposit. When you open a secured card, you make an initial deposit which usually serves as your credit limit. Your account is secured by the deposit.

This deposit works pretty much like a security deposit on an apartment. At the end of your apartment lease, you move out and your landlord inspects your apartment. If it’s clean and in good condition, you get the security deposit back.

In the same way, the cash deposit on a secured credit card is held in an account by the credit card while you use the card. After making your payments on time for a while, your credit card company gives your money back.

It’s good to remember that a secured card still works like a normal credit card. It can help you build credit, but it can also hurt your credit if you miss payments.

Student Loans

Did you take out student loans for school? College loans can help build credit, although you may not see the benefits until you have graduated. Once you start paying your student loans, they act like any other loan. That means on-time payments can increase your score over time. Likewise, missing payments could bring your score down.

The benefit of student loans is you don’t need to pay them while you’re in school. However, if you’ve got a little extra money, you can start paying them off early. This puts you ahead of schedule for paying them off after graduation, while kickstarting the credit-building process so you’ve got a credit score when you leave college.

Lean on Someone Else’s Credit

Did you know you can use a friend or relative’s good credit to build your own? You can, and it can be a really good way to start a credit history.

One option is to be added as an authorized user on someone else’s credit card, like a parent. This gives you your own card to use, but it’s tied to your parent’s account. That means you’re not responsible for paying the bill each month. Each time your parent makes an on-time credit card payment, you get a slice of positive credit.

The drawback? You’ll need to be responsible when you spend money or you could hurt your relationship with the account holder. If you spend too much, the account holder still has to pay the bill.

Credit Builder Loans

An easy and affordable way to build credit while you’re in college is to take out a credit builder loan. Unlike a car loan or student loans, credit builder loans don’t give you a lump sum of money when you’re approved. You get the loan money at the end of the loan, instead of the beginning.

The full loan amount goes into a savings account. You make monthly payments just like a normal loan. You build your credit a little bit each time you make a payment on time. At the end of the loan term, you get the money from the loan.

Most credit builder loans are for small amounts and don’t charge interest. Some credit builder loans require you to pay a fee, but the best ones are no-fee.

Kikoff, for example, provides a fee-free, interest-free loan designed to build your credit without costing you a lot of money. What makes credit builder loans great for college students is the low cost and high approval rates. When you’re counting every dollar for pizza delivery as you cram for finals, a credit builder loan can go a long way to help you build credit.

FAQ: How to Build Credit as a College Student

Does Paying College Tuition Build Credit?

Paying your tuition doesn’t directly improve your credit score. However, if you have student loans and start making payments on them while in school, this could help you build a good credit score.

How Do I Learn to Use a Credit Card Responsibly?

One technique to use a credit card without overspending is to treat it like a debit card. Make sure you have the cash in your payment account to cover any purchases you make on your credit card.

Do My Rent Payments Affect My Credit Score?

Probably not, unless you stop paying and your landlord sends your bills to collections. And then, it’s only going to hurt your score. Rent payments are almost never reported to credit bureaus. You can use a third-party service to report your rent payments, but the effects on your credit score are often small. You’ll also need to convince your landlord to start using the service, which could cost money.

Bottom Line: Building Credit While in College

When it comes to college students and building a credit history, you need to be patient. Start with small accounts while you’re still in school. Make your payments on time each month, and you’ll likely graduate with a couple of years of positive credit history.