Experian, TransUnion and Equifax now offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
Establishing credit in college can give you a head start after graduation. You'll improve your chances of not only getting an apartment but also qualifying for an auto loan and low insurance rates, among other things.
The good news is that there are several ways you can get started building your credit history from scratch. Here are some options to consider.
1. Get a Secured Card or Student Credit Card
Student credit cards are designed specifically for college students. They don't require a security deposit to get approved, and many offer rewards, no annual fee and other benefits.
However, some student credit cards do require that you have at least some credit history to get approved. Additionally, if you're under age 21, it can be difficult to get approved unless you have sufficient personal income—older applicants can include other income sources to which they have reasonable access.
If you can't get approved for a student credit card, a secured credit card can be a good alternative. However, you'll typically need to make a security deposit of $200 or more to get approved. Also, note that the same income rules apply.
In both cases, maintaining a low credit utilization rate—the percentage of your credit limit that you use—and paying on time can help you establish a positive credit history. You can even avoid interest charges by paying your balance in full each month.
2. Become an Authorized User
If you can't get a credit card on your own, consider asking a parent or other loved one to add you as an authorized user to one of their credit card accounts. Ideally, they'll add you to an account with a history of on-time payments and a low utilization rate.
There's no credit check requirement to become an authorized user, and once you're added, the account and its payment history will show up on your credit report, helping you build a positive credit history.
You may also receive a card linked to the account, but if you decide to use it, you may want to discuss any ground rules or expectations the primary cardholder has about how you'll use the card to avoid potential conflicts.
3. Open a Credit-Builder Loan
A credit-builder loan is a type of installment loan that can help you establish a positive payment history over a short period of time. When you take out a credit-builder loan, though, you don't receive any money right away.
Instead, a lender sets aside the loan amount—usually between $300 and $1,000—in a savings account. You'll then pay monthly installments, including principal and interest, until you complete your repayment term, which usually ranges from six to 24 months. The lender will report your payments to the credit bureaus, and once you complete your term, you'll receive the loan proceeds to use however you wish.
The key to making a credit-builder loan work for you is to request an amount that has manageable monthly installments. So, if you have a part-time job and only work a few hours a week, you may want to request a lower amount. Also, make sure the lender reports your loan payments to all three consumer credit bureaus (Experian, TransUnion and Equifax) to help your credit across the board.
4. Get Credit for Rent Payments
Historically, rent payments haven't contributed to your credit score, but Experian Boost®ø changes that. The free feature allows you to link your bank accounts and select the bills you want to add to your Experian credit file—this includes bills for eligible rent, utilities, cellphone, insurance and even some streaming services, which could help your credit scores. Once you add them, you could see your results in your Experian credit scores instantly.
5. Practice Good Credit Habits
Even if you don't yet have a credit card or loan, now is a good time to start developing smart credit habits that can benefit you later on. Here are some to help you get started:
- Pay bills on time. Your payment history is the most influential factor in your credit score, so paying all of your bills on time is crucial. Consider setting up automatic payments to avoid accidentally missing one.
- Create a budget. To create a budget, take a look at your income and expenses over the past few months to get an idea of whether you're spending within your means. You may even consider categorizing your expenses for more details about where your money is going and where you can cut back if needed. Set spending and savings goals each month, and track your expenses to ensure you stick to your budget.
- Limit your credit card spending. It can be tempting to put all of your expenses on a credit card, especially if you can earn rewards or cash back bonuses. But the more you charge, the higher your balance runs, making it more difficult to pay it down each month. High balances also raise your credit utilization rate, which can lower your credit score.
- Only apply for credit when you need it. Every time you apply for a credit card or loan, lenders will run a hard inquiry on your credit reports, which can temporarily lower your score slightly. If lenders see too many hard inquiries or new accounts, they might think you're a high-risk borrower and deny your credit card or loan application.
Check Your Credit Report
Once you begin building credit, you'll want to keep an eye on your credit reports. Your credit reports contain a full history of how you manage credit, so it's important to review it often to track your progress and address potential issues as they arise.
You can access your Experian credit report for free anytime, and also get free weekly access to your Equifax and TransUnion credit reports via AnnualCreditReport.com.
Monitor Your Accounts
Managing multiple financial accounts can feel overwhelming, especially if you've never had to in the past. But staying on top of your transactions and account balances is crucial to avoiding overspending and missed payments.
Even if you set up autopay on your loan or credit card, you'll want to make sure you always have enough cash in your checking account to cover your payments. Having a payment returned due to insufficient funds can result in a fee, and if you go 30 days or more without noticing your payment is late, it could ding your credit score.
If you're having trouble monitoring all of your accounts, consider using a budgeting app that connects to your accounts and imports all of your transactions directly into one place.
Frequently Asked Questions
A credit score is a three-digit number that provides a snapshot of your creditworthiness. It's calculated based on the information found in your credit reports.
The widely used FICO® Score☉ ranges from 300 to 850, with the following ranges to give you an idea of where you stand:
- Exceptional: 800 to 850
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
It's important to note that you typically need an open credit account for at least six months before you qualify for a FICO® Score. With the VantageScore® credit score, another commonly used credit score, you may be able to get a score as soon as you have an open credit account.
Yes, it is possible to get credit without a credit score, but your options will be limited. If you're applying on your own, options include secured credit cards, student credit cards and credit-builder loans.
Alternatively, you may consider applying with a cosigner who has a good credit score. Even if you don't have a credit history, a creditworthy cosigner is agreeing to pay the debt if you can't, creating less risk for the lender.
You may wonder if it's better to wait until you have a full-time job and income to start building credit. However, there are some clear advantages to those who get started with the process while they're still in college.
In particular, building credit while you're young essentially allows you to hit the ground running once you graduate. Whether it's applying for an apartment lease, financing a car purchase or getting a rewards credit card, having good credit will give you an advantage over other recent graduates. Some employers may even run a credit check when you apply for a job.
Having good credit can also make it easier to qualify for low rates on car and homeowners insurance (including renters insurance).
Building Credit for Your Future
The decisions you make in college can set the foundation for your post-graduation life, especially when it comes to your finances. While you can wait to start building credit after you graduate, you'll thank yourself for making the transition easier with an already established credit history and solid credit habits.
If you're ready to get started, sign up for Experian Go™ to get the resources you need. You'll get access to your Experian credit report and FICO® Score for free, along with insights and tools to help you develop a healthy credit profile.