How to Build Credit as a Student

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Credit Sesame on how to build credit as a student. It’s never too early to start.

Building a credit score can seem like one of the last things college students should be focusing on. Classes, homework and a busy social life are just the start. Who wants to start their journey into adulthood by reviewing their credit score and calculating their credit utilization ratio so that they can have good credit?

A good credit score doesn’t just help your future self. If you build credit as a student you can see positive outcomes soon, since higher credit scores can lead to lower interest rates on car loans and make getting approved for rewards credit cards (free flights, anyone?) more likely.

It can be a sign to potential landlords that you’re likely to pay the monthly rent. Also, cellphone carriers may check your credit to set up financing and determine the terms of your phone plan.

Can I get a credit card as a student?

College campuses used to full of credit card companies offering free T-shirts and other giveaways to students who applied for their cards. No income was required, so anyone over 18 could easily get a credit card.

That changed with the Credit CARD Act of 2009, which requires proof of independent income or assets for applicants between 18 and 21. If they can’t provide such proof, young adults can have a co-signer such as a parent. We’ll go over other options later.

How to get a student credit card

Student credit cards are one of the best ways to build credit as a student because the card is in your name and paying it on time is a good start to showing you can use credit wisely. Student credit cards don’t have a minimum income requirement. As long as you have $500 or more in monthly income after paying your bills, you should qualify.

Here are some forms of income to list on a credit application:

  • Full- or part-time work.
  • Financial aid, grants and scholarships after paying your tuition and other college expenses.
  • Student loan funds not meant for college expenses.
  • Paid internship.
  • Dividends from investments.
  • Money you regularly receive from your parents or a guardian that’s deposited into an individual or joint bank account.

You can’t list your parents’ income as your income on a credit card application. However, if they regularly give you money, then you can list that as your income.

You will likely have to submit proof that you’re a student and the school you attend, which shouldn’t be difficult.

Become an authorized user

A way to build your credit as a student if you don’t have an income to qualify for a student credit card is to become an authorized user on someone else’s credit card. Your parents are the most likely people to allow this, since any charges you make will ultimately be their responsibility as the primary cardholder. 

If payments are made on time, then the information will be reflected on your credit report. Eventually you should build a good enough score to get a card on your own.

Get a cosigner

If you’re under 21 and don’t have a job, you can still get a student credit card with an adult cosigner. Again, this could be a parent.

Their creditworthiness will be factored in the application. If you miss credit card payments on the card, then the cosigner’s credit score could drop. The cosigner is responsible for payments if you don’t make them.

Get a secured card

Without income or a cosigner, you may qualify for a secured credit card by just paying a deposit, which will be your line of credit. Payments will be reported on your credit history, helping you to build credit and hopefully get an unsecured credit card later.

How to use your first credit card

Whichever credit card you get, you should use it in the best ways possible to build your credit as a student. Here are some quick tips for using your first credit card to establish and improve your credit score:

  • Make small, daily purchases that you can afford to pay off quickly.
  • Pay your credit card bill in full each month.
  • Pay the bill on time each month, preferably a little early.
  • Use less than 30% of the credit available to you.

Credit score factors 

Credit scoring models vary, but there are five common factors that affect credit scores. A FICO score is the most common, and here are five factors that affect it the most, followed by the percent of a FICO score each factor accounts for:

  1. Payment history: 35%. Paying back debt on time and in full is the best way to raise a credit score.
  2. Amounts owed: 30%. This is the amount of revolving credit you use each month and shows how much you rely on credit. It’s called credit utilization ratio and we’ll go over this later in a little more detail.
  3. Credit history length: 15%. Age of your oldest and newest credit accounts, and the average age of all of your accounts. A longer credit history is preferred.
  4. Credit mix: 10%. Diverse credit accounts such as car loan, credit card, student loan, and mortgage indicate how well you manage a range of credit products.
  5. New credit: 10%. Number of credit accounts recently opened, including hard inquiries lenders make when you apply for credit. Too many are seen as an increased risk.

What is credit utilization ratio?

This term may sound boring, but after payment history it’s the biggest thing you have control over when trying to raise your credit score.

Credit card companies give customers credit limits, meaning they can only use so much credit on a card. A $10,000 limit, for example, means your credit card won’t be accepted when you’ve made that much in charges. You can get some of that back, however, by paying down the balance. 

You can calculate your credit utilization ratio by dividing the total revolving credit you’re using by the total of all of your revolving credit limits. It shows how much available credit you’re utilizing.

You shouldn’t use more than 30% of your available credit. On a $10,000 limit credit card, that means using $3,000 of it. Some creditors prefer 10%. Paying down your balance as you use your credit card is a good way to lower this ratio and build credit as a student.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Aaron Crowe
Aaron Crowe is a freelance journalist who specializes in personal finance topics. He has written for Wise Bread, AOL, AARP, Bankrate and other websites that focus on financial literacy and saving money. He has also worked as a newspaper reporter and editor. You can follow him on Twitter @AaronCrowe.

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