If you’re in college, you already have a lot on your plate, between classes, your social life, and maybe even a part-time gig. So it’s understandable if figuring out how to build credit as a college student isn’t at the top of your to-do list.
But getting a head start on improving your credit score now can significantly and positively impact your financial future. And even if you aren’t looking to build credit as a college student, learning how to monitor your credit status helps prevent all of the long-term heartbreak that can come with a low score.
Fortunately, once you know how it works, monitoring and improving your credit is relatively simple. This article will walk you through all the essentials, and show you concrete steps to start building credit during your college years.
In short, your credit is a three-digit number that represents your financial reputation. Lenders, landlords, and sometimes even employers use this number to gauge how reliable you are with money—and will factor it in when deciding whether to let you take out a loan, rent an apartment, or take on a new job.
In other words, your credit score is more or less like a financial report card, and a good “grade” will mean more financial opportunities in the future.
Your score is determined by credit reporting agencies—the big ones are Equifax, Experian, and TransUnion. They’ll use your bank information and other publicly available financial data about you to assign you a credit score on a scale from 300 to 850.
The higher your credit score number, the better your financial standing is in the eyes of these credit reporting agencies. A score of 700 or more is typically considered “good,” but anything that falls under 580 or so is considered “poor.”
College students have a unique advantage when it comes to their credit score. Unless you’ve already had credit cards or taken out a lot of loans, you’re starting at square one in terms of your financial history. If you act now and start caring for your credit score, you’ll have an easier time getting it into the upper numbers than you would if you wait until after graduation to start thinking about your score.
It can be hard to conceptualize a credit score when it’s just a number you can see on a website. But there are definite benefits to good credit and serious consequences if it gets too low.
Benefits of good credit
With a good credit score, you’ll be more likely to get approved for loans and credit cards. You may not be thinking about loans now, but there’s a good chance you’ll want to take out a car loan or a mortgage in the future. With a good credit score, your chances of getting approved for these loans is much higher.
And when you do get approved for these loans, your good credit score also means you’ll be able to access lower interest rates. In short, you’ll pay less money and get those loans squared away faster with a good credit score.
For starters, you’ll face higher interest rates on loans and credit cards, which means you end up paying more of your own cash to get out of debt.
The second drawback is limitations on the loan amounts and types. Expect fewer lenders to be willing to give you a loan; when they do, they’ll offer smaller loan amounts with higher interest.
Landlords and employers see your low credit score and may decide not to move forward with your application because of your negative financial history.
But don’t worry—a low credit score isn’t a permanent bad mark against you. When you take steps to build credit as a college student, and eliminate bad debts you’ve incurred, you’ll see your score rise.
How to monitor your credit score (and why you should do it now)
If you want to build credit as a college student, the first step should be getting a free credit report—and making this a regular habit. Doing this every year will ensure you always know where your credit stands, and you’ll find out quickly if there’s a change in your score.
All Americans have the legal right to get an annual free credit report from each of the three reporting bureaus we’ve already mentioned. Here are links where you can get started:
In addition to these services, you may be able to get additional credit reports from financial institutions you’re affiliated with (such as your bank). You may even find that they offer additional services, like sending you alerts when there’s a significant change in your credit—taking advantage of these is a good move, so search on your bank’s website or call them to investigate further.
Note that there are paid options for checking your report, which could get you more details. However, unless you’re making a lot of changes to your financial situation each month, you should be fine with free credit reporting options.
5 ways to build credit as a college student
Hopefully, you now understand why it pays (literally) to build credit as a college student. But how exactly do you do that? Here are five concrete ways to build up your credit score before you graduate.
1. Make budgeting a habit
If you’re serious about building up credit, you need to make balancing a budget a steady habit.
This step is more of a preventative measure, essential to prevent you from lowering your credit score because you miscalculate (or failed to calculate) how your finances are working out.
With a good budget, you’ll be able to see exactly how much money you have coming in and going out, which decreases the chances that you’ll miss a loan payment or credit card bill (both of which could bring down your score).
2. Got student loans? Use them to boost your credit
No one likes student loans. They can be daunting, and eat up a lot of the money you want to spend on other things, even years after you’ve graduated.
But, there is one silver lining to student loans—if you play your cards right, they can seriously boost your credit score while you’re still in college.
For many, student loans are the first chance you have to show creditors and lenders that you’re responsible with your money. If they see that you make your student loan payments on time—or even better, regularly submit more than your minimum payment—there’s a good chance your credit score will start rising.
It’s true that paying off your student loans early isn’t always possible, especially if you’re still looking for your first job after college. But as long as you don’t miss payments, you’ll still benefit from improved credit.
If you’ve taken out federal loans, there’s a good chance you’ll have a grace period before you need to start making payments. If at all possible, you should still make at least small payments during this time, getting a head start on both your overall principal and your credit score.
3. Consider opening a credit card—but tread carefully
Before you read any further, there’s something vital you must understand: Carrying a large balance on a credit card, or failing to make credit card payments, can destroy your credit score. Beyond that, credit card debt is incredibly hard to get out of once it builds up.
So before you think, “I want to boost my credit score, so I’ll just open a credit card!”, remember that credit cards will only improve your credit score if:
You can always make payments on time
You will rarely if ever carry a large balance for more than a few weeks
Otherwise, it’s not worth the risk of plunging yourself deeper into debt (and tanking your credit score at the same time).
That being said, if you’re confident that you can pay off your credit card regularly and avoid carrying large balances, then opening a credit card in your name is one of the best ways to improve your credit score as a college student.
However, not all credit cards are created equal. You want to find the card with the lowest interest rate and the best perks (like points you can use toward purchases, cash-back on groceries and gas, etc.).
There are also credit cards specifically meant for students that can give you certain student-related discounts.
The key is to shop around, compare cards, and read the fine print. Don’t sign up for a card until you’re certain it’s a good match—because signing up for too many cards at once is not only a bad idea financially but can also damage your credit score instead of improving it.
For now, if you do plan to follow this route, stick with one card and be incredibly diligent about your payments. If you can do that, your credit score will almost certainly improve.
4. Team up with parents or guardians for better credit
If the idea of opening up a credit card or managing your loans on your own seems out of reach, there are other ways you can start building a line of credit with the help of other adults in your life.
You can talk to a parent or guardian about becoming an authorized user on their credit card. Essentially, this would mean you’d get a credit card of your own linked to their account, which you could then use to start building credit.
Another strategy is to have a parent or guardian co-sign a loan for you. When someone co-signs, they agree to take on the responsibility of the loan if you can’t make payments. They’re essentially vouching for your ability to manage the debt, which can help you qualify for loans you might not get on your own.
If you’re considering either of these strategies, it’s crucial to have a candid conversation with your parent or guardian beforehand. They are taking on a big commitment, and if you rack up too much debt or fail to make payments, they’ll be on the hook for your financial missteps.
At the same time, if your parent or guardian isn’t making their own payments on time, then your credit score could suffer.
So before considering this option, make sure you have a serious conversation about the obligations, when payments are due, and what’s expected of all members involved.
5. Act quickly on credit report changes
Part of being financially savvy is reacting to changes in your credit report before they become bigger issues. If you see a drop in your score or an error, don’t just shrug it off. Take action quickly—because the longer it sits on your account, the harder it will be to address.
First, identify the issue. Your free credit reports should help you determine whether it’s a late payment, an error, or an issue stemming from an account you don’t recognize (which could indicate fraud).
Once you’ve figured out the issue, taking action may be as simple as making a few extra payments to get caught up on the credit card or loan. Once you’ve done that, call the creditor and let them know it’s been resolved. Often, if it’s your first offense and you act quickly, they might remove the late fee, and it won’t impact your credit score.
If you think there’s an error on your report or an issue with fraud, you’ll need to dispute the report ASAP. All of the major credit reporting agencies have methods for disputing elements of your report, typically online. While it shouldn’t be too painful to do so, it can take time—so get started soon after you notice the error.
Your credit score, your future
It’s easy to put off thinking about your credit score until after you’ve graduated, but getting a head start now means you’ll have an easier time managing finances and achieving your goals once you’ve got your diploma.
With a good budget, proactive credit monitoring, and perhaps teaming up with a guardian or getting a credit card of your own, you can ensure your credit score is as high as possible before you finish your college career, setting you up for long-term financial success.