Top 6 Ways College Students and Young Adults Can Build Good Credit

Top 6 Ways College Students and Young Adults Can Build Good Credit

March 12, 2020
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Anyone who’s tried to get a loan or credit card understands the importance of a good credit score. If you are a college student or a young adult, this can be tricky. You have your whole life to build a great credit history, yet you have no credit score now. No credit score can prevent you from buying a car or renting an apartment. It can even keep you from getting that perfect job you want if the company checks your credit history (and many these days do).

According to Experian, a good FICO score for a student/young adult (and everyone else, for that matter) is in the 700+ range. But, reaching that may take a while. What many people don’t realize is that while you’re able to establish credit at age 18, people under 21 aren’t allowed to have credit cards or loans in their own name without proving they have a steady source of income (a job) or a co-signer. You’re young! So, your work history may not be solid enough to help yet.

What’s the best way to get started building your credit score? 

There are many different ways to begin. Start with one.

  • Open a secured credit card. These cards are great because you make a deposit that’s used as collateral against the account. You can’t spend more than you deposit, so this sweetens this deal. Making small purchases on these cards and paying them off before the due date every month can help build credit history. If and when you close that card, funds remaining from your security deposit are refunded.
  • Become an authorized user. You can become an authorized user on one of your parents’ credit cards. This helps you build credit—under their watchful eye. Your parent is ultimately responsible for paying the bill. But you can gain valuable credit history and learn responsibility for making timely payments on your own charges every month. However, keep in mind that your parent’s credit score here directly impacts your own. If your parent doesn’t have good credit, this move is not recommended.
  • Get a retail credit card. These cards can be easier to get than a traditional credit card. Just watch out for overspending or you’ll get in over your head. Interest rates are for real, and that’s what these companies depend on—you’re keeping a high balance on the card that accrues monthly interest. Interest assigned every month increases your balance and your monthly payment amount. So, if you go wild, it will take you longer to pay down a balance.
  • Obtain a secured loan. If you have a savings account, some institutions allow a small loan using the account as collateral. This allows your savings to stay intact while you build credit. Just be sure to use one where the lender reports to the credit bureau, otherwise your credit score won’t budge.
  • Find a co-signer. The co-signer for a credit card or loan is a parent in most cases. This would be a joint account, and if you can’t pay it, your parent is responsible. So, here again, don’t overspend and jeopardize their credit scores if payments become hard for either of you to make. Timely payment is key. Your credit score will drop for late payments. And the card or loan companies charge late fees on top of the monthly interest.
  • Create rental history. If your landlord doesn’t report to the credit bureau, places such as Rental Kharma can help build credit by reporting rental history, usually for a fee. The fee is worth it though, and so are timely payments!

How much credit is too much?

Young people tend to be impatient, and they want credit, lots of it, immediately. Trust us…we’ve been there, too! But, opening too many lines of credit at once can tank a credit score—especially if you can’t make the payments.

However, if you open a credit card—it’s just as important to use it as it is to not overspend your budget. Some cards automatically close due to non-usage, and this can cause your credit score to drop. A few other tips: Don’t use more than 30 percent of the line of credit; Pay on time; Pay more than the minimum balance due.

Monitor your credit score.

You should check your credit score regularly to ensure accuracy. Also, in this high-tech world we live in, identity theft is not uncommon. So, monitoring your score is key. The sooner you find any errors, the easier it is to get things fixed. You can also see if you can make any moves to help raise it.

Fortunately, getting a copy of your report is easy. According to the Federal Trade Commission, everyone is entitled to receive a free copy of their credit report every 12 months. You can order your report from annualcreditreport.com. And, places such as Credit Karma and Credit Sesame offer a variety of credit services such as reports and credit card offers that may be right for the student based on their credit report.

Finally, using a credit monitoring service such as LifeLock or Experian can be a lifesaver. These companies can greatly reduce your risk of having your identity stolen. They can let you know when fraudulent charges are made on your card. If someone tries to use your Social Security number to buy anything, you should get an alert so you can stop that in progress.