When it comes to college students and building credit, “down the road” translates to right now. You may not think it’s an important concept until long after graduation, but college is really the perfect time to start building credit. It’s the timeframe preceding the real world, during which any graduate will need a solid credit score to start the bill-riddled adventures of adulthood. Read on to discover how college students can build credit effectively.
Start out on a parent’s credit account as an Authorized User.
Contrary to what you may have heard, authorized user accounts do count in a person’s credit score under most scoring systems, including the FICO® Classic 4 version that is used for all mortgages today. We have seen this first hand for many years. Even future FICO® models will continue to include these accounts in scores if the card holders are family members.
Why do it? Basically, once your parent’s account is reporting on your report, FICO® will count its credit limit, age, payment history, and balance as though it is yours. It creates instant history that can boost scores significantly. This only works if the account being added has perfect payment history, age (the older the better), good credit limit, and the balance is paid low each month (ideally less than 10% of the limit).
Is there any impact to your parent? No. Your parent can have the new card sent to them. Once they receive it, they should shred it and you will never have the ability to use the card. It will only have the purpose of helping you build credit history. The parent’s account being added as an authorized user will impact the student’s credit; the student’s credit will never impact the parent’s. Of course if your parent ever goes late on the card, those lates will also report on your credit, and you would want to be removed as an authorized user and ask the bank to remove the credit reporting.
Apply for a Secured Card
Open a $300 secured card to begin building your credit history. You will need to put down a $300 deposit that you won’t get back until a year or two of good payment history. If you already have an authorized user account reporting, there is a chance you may be able to be approved for an unsecured card (no deposit) with a low limit.
Use the credit card for infrequent, inexpensive buys.
A tank of gas here, a few groceries there—not a car here, a yacht there. It’s also crucial not to neglect the card in a drawer and avoid using it entirely. Once again, minor, occasional purchases that are promptly paid off in full make for the best credit—and college is the best time to start putting it to practice. And it is best to put your payments on auto-pay; a new 30-day late payment can drop your score up to 110 points!
Apply for just one card at a time.
Accumulating credit cards is a poor habit, especially in a short window of time—as it greatly lowers your credit score and may require credit repair later. This is one of the most important factors of how college students can build credit, and not lose it. Three credit cards is an optimal number that you should try to keep below. It never helps your credit score to close a credit card so do some research once you’ve developed a good score, and pick a card that you can see keeping open for a long, long time.
Pay off the balance monthly, and pay all your regular bills on time.
Putting off your payments as a college student can diminish your credit and accumulate debt. Making minor purchases and paying them off diligently is an important element of how college students can build credit. Avoid ever exceeding your credit limit (that will lower score), and keep track of your purchases and card payments to help boost your credit score.
Look for a student-specific credit card.
This makes up an essential piece of how college students can build credit; a new college-age cardholder might benefit most from late payment reprieve, no annual fee, deals like cash back, travel perks and several methods for redeeming rewards. Some cards allow students to redeem student credit card rewards on websites to pay for textbooks and even dorm essentials.
Never co-sign for friends.
The moment a co-signed friend makes a credit misstep—such as forgetting to pay a bill or amassing too much debt—you’re held liable as well, and your credit score will plummet.
Update your personal information as is necessary.
College might mean periodically moving from dorm to dorm or house to house, so ensuring that you keep the bank informed of your changing addresses is a must when it comes to how college students can build credit. Otherwise, it could result in skipped payments and fee pile-ups (two things you don’t want to have when joining the real world).
No matter what your situation, Go Clean Credit has a solution. We have many credit repair programs that are available to help you overcome your credit situation and place you back on the path to financial success. Real credit restoration is not a once size fits all model and we tailor your needs to the right program, but most people can start for just $99 per month.
We have fixed price programs that get you back on track in as little as 5 months, debt resolution solutions, programs geared toward people who have had recent short sales or foreclosures and many others. Help is just a free phone call away or you can fill out an appointment request. Contact Go Clean Credit to schedule a free consultation today.