How to Build Good Credit in College

The Importance of Establishing Credit in College

Once you're financially independent, your credit history will have an impact on many parts of your life. Landlords may look at your credit report—which includes payment history for each of your loans and credit card accounts—to determine whether you will be a responsible tenant. In most states, auto insurers will check your credit. Even some cellphone plans require a credit check.

If you establish strong credit when you're young, you'll likely have a better chance of qualifying for these things on your own without, for instance, needing a guarantor or co-signer to secure a lease on a new apartment. That can make the process easier and prevent you from having to ask a parent, grandparent or another trusted family member or friend to help.

You'll also start developing a long positive credit history, which can serve you in the future when you seek a mortgage, new car loan, graduate school loan or premium credit card. Preparing for life after graduation now will help you make a more seamless transition to living independently.

What Is a Good Credit Score for College Students?

According to FICO, the most commonly used credit scoring model, a good credit score is 670 or higher on an 850-point scale. A fair credit score is 580 to 669, and a poor credit score is 300 to 579. That's true for everyone, whether or not you're a college student.

It's unlikely you'll have a credit score at the top of the range at first, since a score in the 800s takes time to develop. But it's a good idea for college students to aim for a score of 700 or higher to get access to the lowest interest rates and the most sought-after financial products.

If your score is on the lower end, you may have to use a cosigner to get loans and you'll pay more interest on any loans you do get. You may also be disqualified from credit cards that can provide valuable benefits like cash back and travel rewards.

To build a good credit score, you'll first have to open your own credit accounts or join an existing account (more on that later). Then, you'll need to demonstrate you can appropriately manage the account by making all monthly payments by the due date and avoiding taking on more debt than you can handle.

The factors that most affect your credit score are:

• Payment history, or how often you pay your bills on time
• Credit utilization, or the amount of your available credit limit you use
• Credit history length, or the amount of time you've managed your own credit accounts

Additional contributors to your credit score include your credit mix, meaning the different types of credit accounts you have, and how often you open new credit accounts. Limiting requests for new credit shows lenders that you can responsibly handle your finances without needing new lines of credit frequently to afford your expenses.

Do I Need Credit to Get a Student Loan?

You do not need a credit history to get most federal student loans, which are made by the government. (Parents and graduate students generally need to undergo a credit check to get federal PLUS loans, however.)

For most undergraduate borrowers, that means federal loans are a better choice than private loans, since undergraduates in particular typically don't have a credit history of their own. Federal student loans also come with a range of useful benefits, including flexible repayment plans, forgiveness options and opportunities to pause payments if you need to. Private lenders aren't required to offer the same level of protections for borrowers, and may also carry higher interest rates for many borrowers.

But many students may need additional funding to pay for college costs, which is why families may seek private student loans to bridge the gap. Private loans are made by banks, credit unions and online lenders, and whether or not you qualify—or get the lowest interest rates available—depend on your credit. Students can typically get private student loans by having a parent or another trustworthy adult cosign.

If you have student loans and can afford to make payments while you're in school, you can begin establishing good credit in college by paying your student loans now. That will jump-start your credit history and add on-time payments to your credit report. You'll also save money on interest, and potentially pay off your loans sooner.

But only do so if paying your loans won't jeopardize your ability to pay for other necessities, like housing and transportation. Your top priority should be to graduate from college on time so that you can seek a career that can help you pay off any student loan debt you've taken on.

Tips for Establishing Credit in College

You have lots of options for building credit in college, both on your own or by joining another person's credit account to start. Pick the strategy that's most accessible for you, in terms of the time commitment and any deposit you'll have to make. Here are some options:

• Get a secured credit card. Secured cards work similarly to traditional credit cards, but you'll generally pay a cash deposit equivalent to your credit limit to open the account—say, $200. You may be able to qualify for an unsecured card after a certain number of on-time payments. Secured cards can be a safer alternative to traditional credit cards because their credit limits are generally lower, and they may be easier to get without credit history or independent income of your own.
• Apply for a credit-builder loan. These accounts are typically offered by credit unions, community banks, lending circles and some online lenders. When you apply, the lender sets up a savings account for you in the amount of the loan you've qualified for, and you make payments toward that account each month. The lender reports your payment history to the three national credit bureaus (Experian, TransUnion and Equifax), and your credit history will show on-time loan payments as you make them—plus, you'll have access to a savings account at the end of the term.
• Join another person's credit card account as an authorized user. While the previous two options are available to you independent of anyone else, becoming an authorized user requires you to have a parent or another person willing to add you to their account. You'll be able to benefit from their potentially long credit history, and as an authorized user you're not responsible for payments on the account (though you can arrange to pay the account holder for any charges you make to the card). Authorized-user account activity may not have as big an impact on your credit history as managing your own account, but it's a start—especially if you're not yet ready to take on a credit account yourself.
• Have your rent or utility payments reported to credit bureaus. Another way to build credit is to make sure any regular payments you're already making are reflected on your credit report. There are several services—which are either free or charge a fee—that landlords can use to report your rental payments.

A free tool called Experian Boost^®ø can also integrate cellphone and utility bill payments into your Experian credit report, which may improve your FICO^® Score^☉ . Your credit report at the other credit bureaus won't be affected. Take advantage of another longer-term credit-building strategy in order to make a bigger impact on your credit history.

Good Credit in College Will Pay Off

In college, you have a lot of competing priorities, and adding building credit to the list might seem difficult. But pick just one of the strategies above to start, and consider additional ways to establish credit when you're ready to. Growing a strong credit score will take time, which is why it's useful to start the process as early as you can.

In the future, you may want to take on a mortgage, get a car or even borrow student loans to help your child fund college. If you have good credit at that point—partially due to your long credit history—you can look back on your credit journey with gratitude that you took it seriously from the start.