Between classes, work and socializing, college students have a lot on their minds. If you’re in school, growing your credit score may be low on your list of priorities, but there are some good reasons to focus on building credit in college.
From renting your first apartment, to landing a job, to someday buying a home, your credit score can have a big impact on your financial life. Making your credit a priority now can pay dividends long after you graduate.
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The Benefits of Building Credit in College
Building a solid credit history isn’t something you can do overnight. Luckily, when you’re still in school, you’ve got time on your side. Your credit score is calculated from several components, including your payment history and the age of your credit accounts. Having older accounts on your credit report can work in your favor when it comes to your score, especially if those accounts all have a positive payment history with no late payments.
Being able to show a landlord two to three years’ worth of credit history can make it easier to get a lease in your name as long as you’ve consistently been making on time payments. Credit scores and credit reports ranked as the top two factors landlords consider when making rental decisions. 1 If you don’t have any kind of credit history, you may not be able to rent a place without a cosigner.
Then, once you’re ready to make the transition to home ownership, a good credit score could work in your favor for getting approved for a mortgage. Your credit score also influences the interest rates lenders charge on what you borrow. Getting an early start on building up your score in college can ensure that by the time you’re ready to buy, you’re putting your best foot forward credit-wise.
Opting not to worry about building credit in college could mean you’ll be playing catch-up later on. If you’re ready to finance a car or buy a home but you don’t have the credit score the lender’s looking for, that could mean paying more in interest for a loan, or worse, being denied credit altogether.
What Tools Can You Use to Build Credit in College?
There are several ways to establish credit in college, and one of the easiest and most convenient is a student credit card. Student credit cards are designed for people who are just starting to build credit, as well as offering cash back rewards. For example, the Discover it® card for students offers the opportunity to get $20 cash back each school year your GPA is 3.0 or higher for up to 5 years. 2
If you’re not able to get approved for a student credit card, a secured credit card may be another option. With a secured card, you give the credit card issuer a security deposit after you get approved for the account. The Discover it® Secured credit card, for example, allows you to open an account with as little as a $200 security deposit.
As you make purchases against your secured card’s credit limit and pay them down, that activity is reported to the credit bureaus by the card issuer. Certain cards give you a chance to graduate to an unsecured credit card if you can demonstrate that you can use the card responsibly among other criteria.
Managing Credit Responsibly in College and Beyond
Once you’ve gotten a student credit card or secured card, the key is to make sure you use them wisely. First and foremost, this means paying your bills on time every month. Payment history carries the most weight for your credit score calculations.
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It’s also important not to overdo it in terms of using up your available credit or applying for new credit too often. Maxing out your credit cards or applying for multiple cards or loans in a short period of time could hurt your credit score and make you appear risky to lenders.
Charging only what you can pay in full each month, paying on time each month and being selective about applying for new credit are all good credit habits that can help you build credit in college to get you on the right path.