Building Credit: Tips for College Students

Going off to college is an exciting time in a person’s life. For many, it is the first time they will experience the real freedom of being on their own. A big part of that independence is becoming economically smart. Achieving that will require building a good credit score for the future, which can be difficult to do for a student. There are a few steps they can take to start building a good credit base.

The unfortunate thing is that consumers need credit in order to have a good credit history. On the other hand, it can be difficult to secure a credit account if there is no past credit. Here are some ways for students to begin to build a good credit score.

*Credit card – Secure a credit card if one is not already owned. However, don’t just apply for any card. Look for one with a low balance, no annual fee, no frills and a low interest rate. Cash back bonuses or other offers are nice, but this normally leads to higher rates.

*Pay the balance – Once a credit card has been received it is important to use it properly. Make small, periodic purchases that can be paid off in full each time the bill is due. Companies that study credit use to set scores don’t look at how much has been charged. They are more concerned with whether the bill gets paid. In addition, paying the bill in full each time will eliminate the possibility of getting trapped with high interest payments.

*Add an installment loan – These are often larger loans, such as for a car payment or student loan. Making payments on one of these, in addition to being in good standing with a credit card, can go a long way to showing responsibility to the credit score companies.

*Take advantage of parents – If a student is unable to secure their own credit card or installment loan, they may want to consider getting added to a charge account owned by their parents. They can take advantage of the good credit rating established by a parent. This may limit what they can spend on the account, but it can be a jump start and make it easier to eventually secure credit on their own.

*Limit accounts – While credit rating companies are impressed by a credit card account being in good standing, having more than one account is not necessarily a good thing. Having multiple credit cards can actually lower someone’s credit rating.

Students can have a hard time getting credit due to their inexperience and lack of credit history. Building good credit will take some work and requires a bit of planning. In the long run it will be worth it when the student is economically sound and paying less on interest rates for larger loans.