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  • Writer's pictureNathan Zarcaro

How I Built Credit as a College Student

Updated: Oct 5, 2022


College students nationwide have plenty enough to stress them out. Difficult coursework, adjusting to living on their own, and paying for their education are just a few of the common stressors that college students routinely contend with.


But it's also important to begin to look to the future, and an integral part of this is establishing credit. As a former finance student only four years removed from my own experience, I put a lot of effort into all aspects of my personal finances, including building credit while in college.


This post will guide you on how to build credit as a college student.


A group of college students walking across campus


What factors determine your credit score?


Your credit score is determined by five main criteria:


  1. Your payment history

  2. Your utilization

  3. The length of your history

  4. Your credit mix

  5. New inquiries


Let's take these one by one, and then we'll pivot and discuss the ways in which college students can increase their scores.



1. Your payment history


35% of your total score will be determined by analyzing your payment history, making this the single most important factor in the formula that determines your credit score. It is critically important to avoid missing any payments, since any missed payments will show on your report for as long as seven whole years.



2. Your credit utilization


Your utilization is the second most important component to the formula. Making up 30% of your FICO score, you'll want to avoid maxing out any credit cards you have. Generally, it is best practice to use less than 30% of your credit limit at any given point.


If you're looking to maximize rewards points or cashback, one workaround is to charge purchases and make a mid-month payment before you continue making purchases. Your utilization is based on revolving credit, so technically, it is possible to surpass your limit if you make multiple payments over the course of any billing cycle.



3. Credit history


Your past history matters. As such, when lenders run credit checks, they like to see longevity in your file. This means that your file will (in time) have things like:


  • Credit cards that have histories that are years long (rather than consistently applying for new ones and closing old ones)

  • Favorable metrics regarding the average age of your accounts, and how old your oldest and newest sources of credit are.


This makes up 15% of your score.



4. Your credit "mix"


Lender like to see that you've had success using and paying multiple sources of credit (cards, mortgage, etc.) - this is a fine line, as you don't want to be over leveraged, but you also do not want to be penalized for having a "thin" file either. It comprises 10% of your FICO score, and rewards those who strike the perfect balance.



5. New credit inquiries


The remaining 10% of your credit score will be determined by taking into account your number of hard credit inquiries made over a period of time. Typically, hard inquiries will lead to a slight drop in your score, but this can be necessary when doing things like applying for a mortgage.


Basically, you just want to be smart about it. Best practices dictate that you should not constantly be applying for new credit sources, since they'll ding your report and may signal to lenders or card issuers that you are in some sort of financial distress.



Why is building credit important?


Building credit from a young age is really important, and will lead you to more easily be approved for credit in the future. Since having a good credit score sets you up for a lifetime of low-interest rates on future car loans, personal loans, mortgages, and more, you'll save yourself thousands (and potentially tens of thousands) of dollars that otherwise would have gone to interest.


Of course, the sooner you start to build your history, the better, since longevity is one of the key factors being used by Experian, Equifax, and TransUnion, the three large credit bureaus.



How to build credit as a college student


If you're looking to begin or continue building credit as a college student, consider using these tips.



1. Apply for and use a student credit card


Many credit card companies offer student cards specifically designed to be used by college students. They often come with easier qualifying criteria and lower credit limits.


Student cards may come with other perks to incentivize financial and academic responsibility, like cash back programs if you maintain a certain grade point average, for example. Additionally, many credit cards for college students allow you to pre-qualify without impacting your score. This means that, even if you qualify for a certain card, you may opt to walk away without completing the application, all with no negative impact to your credit score.


Two of the more popular student cards to use are:


  1. Chase Freedom Student

  2. Capital One SavorOne Student Cash Rewards



Chase Freedom Student


Carrying a $0 annual fee, this is Chase's best cards for college students. Those with limited history are eligible to be approved for the card, and it carries the following perks as well:


  • 1% cash back on all purchases

  • No minimums to redeem cash back

  • $50 bonus after making a purchase within 3 months of opening account


As far as college cards go, Chase Freedom Student is basic and does the job.



Capital One SavorOne Student Cash Rewards


Named by WalletHub as the best card for college students to build credit, the card is specifically designed for those with fair scores or limited histories. Alongside a $0 annual fee, you'll earn $100 if you spend $100 in the first three months. Additionally, you'll receive:


  • Unlimited 3% cash back on dining, entertainment, streaming, and grocery stores

  • 1% back on other purchases


Plus, the cash back that you receive doesn't expire. Not bad!


 

I did not use a student credit card in college, and it is probably my only financial regret from that time. It didn't directly impact me, fortunately, but life following graduation likely would have been better had I not used a debit card for everything.


If I hadn't, I likely would have qualified for better financing on the car that I purchased the summer after I graduated, and potentially on my home as well, as I would have had a longer credit history.



2. Become an authorized user on someone else's credit card


Authorized users of credit cards are able to use another person's card to make purchase, without being held responsible for making the monthly payments. But by virtue of being added as a user to a family member's card, you will begin to build credit, since most of the many card issuers report payment and transaction history to credit bureaus for both primary and authorized users on an account.


Being added to the card of a family member or friend can be one of the best credit-building hacks out there, but it comes with a couple warnings:


  • Make sure that the person is financially responsible and always makes timely and full payments

  • Assure that the individual's utilization is within recommended guidelines


But if these guidelines are not an issue, then there is really nothing to lose. And if your family member or friend is hesitant about you being added to their account, try reminding them that your intention isn't even to charge purchases to their account.


You'll want to verify with the credit card issuer, but you may even be able to increase your credit history without actively charging anything.


 

This is a really common way for college students to build credit, my wife included. When in college, instead of writing her checks or "Venmo-ing" her for incidentals and groceries, my father in law added my wife to one of his credit cards instead.


That way, she could still cover any incidental expenses he agreed to help finance, but she would also begin to establish a credit history.



3. Make all of your payments timely and in full


Arguably the best way for college students to build credit is to just make sure that you're making every single payment on time. This includes everything you make monthly payments on, including rent, car payments, credit cards, and any other items that you are financially responsible for.


Now, depending on your landlord (if you are indeed a renter), your rent payments may or may be reported to the major reporting bureaus. One such service, ERentPayment, does charge $3 per transaction for the service, but the $3 may save you far more in the future by virtue of a better score.


Also check to see if you qualify to use programs like Experian Boost, which may help your score by reporting timely utility payments, like your electric bill.


 

Do not fall victim to any discounted promotional APR offers. Oftentimes, those that are accepted to be a user of a new code are offered 0% financing on any card balances for a period of time.


This happened to me. When I got my first credit card, I was offered one of these promotional periods, something to the tune of 0% financing for the first six months. What your card issuer does not loudly advertise is that taking advantage of this "perk" is likely to adversely impact your score.

I can't even remember how many friends I have prevented from mistaking this same mistake over the past five years or so.



4. Use your student loans to build credit


Student loans suck, and everybody knows it. In fact, they are the original reason I even started this blog. But there is one silver lining to them. You can use them to start the credit building process. If you're still deciding whether you need to take out loans for your education, consider starting with federal loans first.


But if you're graduated, or will be in the short term, remember that timely payments are the best thing that you can do for your credit.


Struggling to keep up with your student loan payments? Consider refinancing them with a private lender like Splash Financial or LendKey. Not only can they quote you a rate in less than five minutes, but it won't effect your credit score until you actually accept an offer.




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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and has worked for industry leaders in both finance and healthcare.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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