How to Build Your Credit Score in College
Here are seven simple steps to build your credit score in college and set yourself up for financial success.
The lessons you learn in college serve as the foundation for your adult life. In addition to taking courses for your chosen career, it is important to learn life skills that grow your financial knowledge as well. One of those skills is establishing your credit score. Here’s how to build your credit score in college to set yourself up for financial success in seven simple steps.
What makes up your credit score?
Credit scores provide a numeric score of your financial behaviors. Scores range from 300 to 850, and the higher your score, the better. Your score changes regularly as banks and other lenders update your payment history, balances and other relevant information.
Your FICO score is determined by these five characteristics:
- Payment history (35%): Your ability to make on-time payments is the most important factor because it makes up the biggest chunk of your credit score.
- Credit utilization (30%): Keeping balances low compared to your credit limit helps improve this factor. Ideally, you’ll keep balances below 30% of your limit on each credit card.
- Length of credit history (15%): The longer your credit history, the more confident lenders are that your good behaviors will continue over time. Because you are just starting out, it will take time to build this part of your score.
- Credit mix (10%): Lenders want to see that you can handle different types of payments. Having both term loans (e.g., car notes, student loans) and revolving credit (e.g., credit cards) helps to keep this score high.
- New applications (10%): When you apply for too much credit in a short time frame, lenders assume that you may be in financial trouble. Only apply for credit when it is necessary.
7 simple steps to build your credit score in college
Building your credit score in college isn’t just one behavior. It is the accumulation of many different actions that combine to create a healthy credit score and a solid financial foundation. Follow these seven simple steps to create your credit score.
Set up automatic payment of the minimum amount due
Since paying your bills on time makes up 35% of your score, it is critical that you make each payment on or before the due date. Link your bank account and set up automatic payment of the minimum amount due each month. Not only does that ensure that you won't miss a payment, but it also eliminates being charged late payment fees. With late payment fees as high as $39 each month, they can quickly add up.
Apply for credit only when necessary
Banks and retailers tempt young adults on a regular basis with offers to apply for new credit. While the welcome bonus or store discount may seem appealing, make sure that submitting an application is worthwhile. We recommend limiting applications to no more than one every six months.
Open up a student credit card
Getting approved for a student credit card can be easier than a standard credit card. Banks understand that students often have limited income, so student credit card underwriting criteria tend to be looser. These cards usually have lower credit limits, but may also include benefits that cater to students. For example, some student credit cards reward cardholders for good grades.
Become an authorized user on someone’s card
One of the quickest ways to build credit is to become an authorized user on someone else’s credit card. You’ll benefit from their positive payment history, and they may have a larger credit line than you’d qualify for on your limited income. Treat the card with respect because the primary cardholder is also responsible for any charges that you make.
Make payments on your student loans (even when not required)
Although subsidized federal student loans don’t require payments while you’re in school at least half time, consider making payments anyway. Doing so will help minimize interest charges and the amount owed when you graduate. Additionally, you’ll be creating a positive payment history with each payment that you make.
Shopping around for the best rates and terms while you're in college will help you keep your payments down. Consider using Juno to compare lenders for student loans while you're in school. If you've already graduated or are getting close, consider refinancing or consolidating your student loans. Having just one loan makes it easier to keep track of, and you may qualify for a lower interest rate.
Only charge what you can pay off each month
While credit cards can tempt you to buy things now versus saving up for them, think before you make that purchase. Students often have limited income, and if you don’t pay off your balance in full each month, the bank will charge interest on the unpaid balance. Credit cards often charge annual interest of 15% to 25%, so those interest charges add up quickly.
Follow your credit report and credit score
It is important to monitor your progress toward building your credit score in college. You can get one free copy of your credit report each year from all three credit bureaus at AnnualCreditReport.com. Some people spread them out by requesting a credit report from a different bureau every three months.
While some companies charge you to access your credit score, several apps and websites provide free credit scores to all consumers. Free websites include Discover Credit Scorecard, Chase Credit Journey and Credit Karma. Additionally, many banks include a free credit score in their apps or on monthly credit card statements.
The bottom line
College is a time for fun and to learn important lifelong skills. Unfortunately, most college classes don’t focus on the basics that you need to learn how to manage your money. Credit scores impact everything from loan interest rates and credit card approvals to how much you'll pay for insurance. In some cases, a poor credit score could prevent you from getting hired for your dream job. By establishing a solid foundation with your credit score, you'll be prepared to leave school and create the life you've worked so hard to achieve.
Lee is a travel writer and podcast host based in Nashville, Tennessee. Lee spent 18 years in banking and investments and now uses that insider knowledge to write about credit cards, travel, and other personal finance topics.