Four Simple Ways to Build Credit as a Student
It can be difficult for a student to get approved for credit once they graduate. With many students graduating with loans and no real credit history, their debt to income ratio may mean they get denied for tools like credit cards. The question then becomes how to build credit in college so that they are better prepared for the real world. Here are four simple ways to build credit while you’re still in school.
Get a parent to co-sign on a credit card.
Perhaps the easiest for students to build credit while in college is to get their parents to cosign on a loan.
After the 2009 CARD Act, credit card companies were no longer to promote their products within 1000 feet of a college campus. It made it more difficult for people under the age of 21 to get a credit card.
One of the ways around this is to get your parent to co-sign on a credit card for you. Not only does it solve the problem of how to build credit in college, but the parent can also use it as a teaching opportunity to show their children how to properly budget and use a card.
If you have a job, consider getting a credit card with a low limit.
The other way to get around the CARD Act regulation that allows you to get a credit card before the age of 21 is to show some proof of income.
If you’re working while you’re in school, you can use that as your income when applying for a credit card. Depending on the issuer, you may get it.
Now, here’s exactly how to build credit in college when you get an unsecured card.
If you do get approved keep it at a low limit so you don’t run the risk of overspending. You could also only use it to put one recurring cost on it each month like your cell phone bill and pay it off each month. This will ensure you don’t go over the suggested 30 percent debt to credit ratio while showing credit utilization.
By only putting one expense on the credit card you also make it easier to pay the bill in full each month. This helps the student build credit while in college because it shows a positive credit history.
After a few months, you may want to increase your credit limit to further reduce your debt to income ratio. However, you should only do this if you can be disciplined enough to not spend money you don’t have.
If you can’t get approved for an unsecured credit card, consider a secured card.
A secured credit card is like a credit card with training wheels. You put money down upfront and then that money is used to determine your credit limit. This differs from an unsecured card because unsecured cards don’t require you to put down anything.
For those who have zero credit history or can’t get approved for an unsecured card, a secured credit card is a good way to build credit in college. You’ll just want to make sure the card reports as unsecured to the three major credit bureaus. You’ll also want to make sure there aren’t any extra fees associated with the use of the card, like an annual or maintenance fee.
Once you’ve got the card, then you can use the same strategy we mentioned with an unsecured card. Simply put one expense on the card and then pay it off in full each month.
Some unsecured credits will also automatically upgrade the card to unsecured after a few months of complete and on-time payments. Others may require you to cancel the card first (which can dip your score) and then apply for the unsecured version of the card.
Pay the interest on your student loans while you’re still in school.
Direct Unsubsidized Loans allow you to pay the interest on your student loans as it accrues. That means you can start paying down your student loans while you’re still in school. Depending on the loan you may also be able to throw some money toward the principal.
While this may not build credit, per say, it will decrease your debt to income ratio when you decide to apply for a credit card. The lower you can get that ratio, the better your credit score will be and the easier you’ll get approved for a credit.
By knowing what options are available to them and playing their cards right, students can take advantage of strategies that will help them build credit in college. The key is to get started early so that you already have decent credit history by the time you graduate.