Building Credit as a College Student

Before the 2009 Credit Card Accountability Responsibility and Disclosure Act (CARD Act), it was common for credit card companies to set up tables on college campuses, hand out free t-shirts, basketballs, frisbees, food, and other merch in exchange for students signing up for a credit card. Many of these cards, known as “college affinity cards,” featured the college mascot. 

The CARD Act introduced many consumer protections for those with credit cards—and those without. The restrictions on offering credit to anyone under 21 have gotten much stricter. Credit card companies must require a co-signer or proof from younger applicants that they can pay their debt. The Act also forbids credit card companies from marketing specifically to college students unless the students opt-in.  

So with credit such an important influence on major life decisions, how can you establish credit when you’re still in college?

The importance of good credit

Before we talk about how to cultivate and establish a good credit score, let’s talk about why it’s critical for your financial life.

You’ll have better luck getting lower interest rates on loans like car loans or private student loans with good credit. And a strong credit history increases the likelihood of loan approval.

Renting an apartment off campus with friends? Landlords often look at potential tenants’ creditworthiness. And a good credit score might result in lower security deposits, too.

Once you start job hunting, potential employers may want to check your credit as part of their background screening. Higher credit scores can reflect responsible financial habits—key for jobs in the military, economic world, law enforcement, and other government positions.

When it’s time to purchase a home, a good credit score will help you qualify for a mortgage. A strong credit history helps here with better mortgage terms like lower interest rates and better loan-to-value ratios.

Suggestions for building credit

While the CARD Act makes it more difficult to get a credit card before you graduate from college, the restrictions aren’t a bad thing. And you can still get a credit card with terms designed to protect you from incurring more debt than you can pay off.

Secured credit cards

These credit cards require a security deposit, which serves as collateral. The deposit is often equal to the credit limit. You can use it for everyday purchases and pay the balance each month. Using your card in this way will help build a positive credit history.

Become an authorized user on a parent’s credit card

Your parents can add you to one of their credit cards. As an authorized user, you’ll build credit quickly because you benefit from your parent’s positive payment history and established credit.

Obtain a student credit card

Some credit card companies and banks offer student credit cards with lower credit limits and interest rates. According to NerdWallet, the best (5-star) cards for students include:

• Discover it Student Cash Back
• Capital One SavorOne Student Cash Rewards Credit Card
• Discover it Student Chrome
• Chase Freedom Unlimited

Pay bills on time

Pay on time. Always. Your payment history comprises about 35% of your credit score. Avoid using your card for large purchases you can’t pay off quickly or easily. If you must make a large purchase, plan your repayment strategy ahead of time. If you miss a payment or are late, it’s reported to a credit agency and can affect your score for up to seven years.

You can set up automatic payments with each company (or your bank) to make sure you never miss a payment. Or consolidate your bills—like those you get from the same provider, such as phone/internet. Another bonus for having an on-time payment history? Better interest rates.

Avoid excessive debt

Be mindful of your spending habits and avoid accumulating massive debt. Keep your debt-to-credit ratio low (it’s the amount of debt you owe compared to your total credit limit).

You’re on your way to good credit. Now what?

Set yourself up for financial success later by spending responsibly now. Start by limiting credit card applications. Applying for multiple cards quickly raises red flags with issuers. Plus, each card adds debt potential, which can become overwhelming if you’re tempted to use them but lack the resources to pay them off. Each application triggers a “hard inquiry” that will lower your credit score in the short term—and card issuers can interpret multiple inquiries as a credit risk.

Spend wisely. Credit utilization—your ratio of credit used compared to your total limit—matters. Aim for 30% utilization or lower. Think of your credit card as a debit card, and only make purchases you can afford to pay off in full each month. Check your account regularly to track purchases, rewards, and due dates. Set up purchase notifications to detect fraud quickly.

Track your progress. You can get a free weekly credit report from the major credit bureaus (Equifax, Experian, and TransUnion) via AnnualCreditReport.com. Regularly monitoring your report allows you to take greater control of your finances. And if you see a disparity on your credit report, dispute it with the credit bureau.

Final thoughts

Credit scores range from 300 to 850. The higher the score, the better.

• 300-579 (poor)
• 580-669 (fair)
• 670-739 (good)
• 740-799 (very good)
• 800 - 850 (excellent)

If you’re a typical college student working to establish good credit, your goal is to aim for 670 or higher. According to FICO, the average credit score for Americans is 717. Responsible credit management is the key. Start smart, check in with your credit regularly, and you’re on your way to financial success.