College Students and Credit Cards

Credit is, for better or for worse, part of life. You need credit, specifically good credit, to buy a car, rent an apartment, get the cheapest car insurance and so much more.

But it’s hard to build credit when you don’t have any. Thankfully, most financial institutions know how crucial developing credit is while you’re in college and offer specific opportunities for you.

In this article, we’ll provide some beginner suggestions to help you establish credit.

1. Ask your parents or other relatives to become an authorized user on their credit cards.

If you have a good relationship with your parents, and if they have good credit, you can ask to become an authorized user on their credit card. This does mean you would have access to their credit. If they’re uncomfortable with you using the credit card, you can always have them keep the card for peace of mind.

Becoming an authorized user on someone’s credit card is as easy as having the primary card holder ask the bank to add you as a user. They will issue a credit card in your name, and then you’re all set up and ready to go.

What having authorized credit does is essentially add that credit to your credit report. It’ll report just like a regular credit card on your account. That means that the company will report information from that credit card account. Things like the credit limit, payment history, and card balance will all show up on your credit report.

An important tip: Only do this if the person who is authorizing you on their card is responsible with their own credit usage. If they’re not, don’t become an authorized user. You don’t want erratic credit behavior to appear on your own credit report.

2. Apply for a secured credit card.

A secured credit card is where you pay to secure the credit. Essentially, you prepay the credit card as a security that you’ll pay your credit card bill. Some cards start as low as $200 and can go as high as $2,000.

You’ll need to prepay any amount you choose, so pick an amount that’s reasonable for your budget.

You’ll also want to read the terms and conditions. Some secured credit cards have high yearly management fees, some as much as $99/year. You don’t want to get stuck paying a fee for having a credit card if you can help, so look for a card that has the lowest fees possible.

Secured cards can have very high interest rates, so you’ll want to ensure you pay off your card every single month, on time, and in full. Otherwise you might be paying somewhere close to 30 percent on all of your purchases.

3. See if your bank has a college credit card.

A college credit card is a low limit card designed for college students. You won’t necessarily get a card just because you’re a student. They’ll want to know your credit score, employer, financials, and a couple other things to qualify for a card.

A college card is better than a secured card because they tend to have lower fees and you don’t have to pay any money upfront like the secured credit cards do.

As with any card, make sure that you check and see what monthly maintenance fees you’ll have to pay, if any. And also check the yearly amount they charge. You want to go with a card that doesn’t have any monthly fees and has no yearly fee.

College cards also have higher interest rates because they’re taking a risk on your credit history. As with all credit cards, it’s financially smart to pay these cards in full every month.

4. Add your bills to reporting bureaus.

Having a credit card isn’t the only way to build your credit. You can also sometimes report your bill payments to the credit agencies. Good payment records is another way to grow your credit score.

For example, Experian makes it easy to report your payments: you attach your bank account to your account and it scans for any recurring payments. The other two bureaus have similar processes.

5. Build good credit habits

Good credit habits will help grow your credit score. Your FICO score is determined by several different factors, most importantly, credit usage, payment history, age of credit, and credit mix. (Want to become a credit report expert? Check out this article!) There are other factors as well, but if you pay attention to these three things, you’ll be in good shape.

Credit usage determines about 30 percent of your score. You want to keep your usage below 30 percent. That means if your card limit is $300, then you’ll only want to spend $100 before paying off your credit card every month.

Payment history takes care of about 20 percent of your score. Payment history takes into account how you pay. Do you pay on time and in full? Are you at least making the minimum payment? These are the questions this part of the score accounts for. You’ll want to make sure you’re at least paying the minimum on your card on time. But to build a good credit habit, I recommend you pay in full.

Age of credit and credit mix are things that you can build over time. They like longer opened accounts, so you’ll likely keep open your credit cards for as long as possible. That’s why it’s important to look for cards that don’t have any monthly and yearly fees.

Mix of credit refers to how many types of credit you have. If you have personal loans, student loans, a mortgage, those are all different kinds of credit and will increase the mix of credit you have.

6. Check your credit score regularly.

Checking your credit score is a good habit to get into. It’s pretty easy, too. Sites like CreditKarma track your scores and suggest credit cards that will work in your favor. You can also sign up for score updates through the major credit bureaus.

A quick tip: the credit score you see on sites like CreditKarma are not necessarily accurate. Also, lenders use different credit algorithms to calculate score—some mortgage lenders use FICO 3, for instance. So consider that credit score as a guideline, rather than absolute fact.

7. Download your credit reports yearly.

One in three people has a mistake on their credit report. Downloading and checking your credit reports yearly will help limit that. If you do find a mistake, you can call the agency to get it fixed.

You are entitled to get a free credit report once every 12 months from each of the three reporting bureaus. Requesting your report is easy—visit AnnualCreditReport.com to get your copy from one or all three bureaus. Note that you don’t have to get all three at the same time; you can request separate credit reports spread out over the year.

Want to keep a closer eye on your credit history? You can request one report at a time and spread them out throughout the year, so you can monitor your credit over the entire year.

Early Credit Building Can Be Very Helpful

Even the smallest steps towards good money habits can make big differences in the long run, especially if you start in college (or even before!). Every day that you use your credit card responsibly and pay your bills on time, you’re working towards financial security and stability.