The average age of your credit history is one factor that goes into determining your credit score. At fifteen percent of your score, having a longer credit history can make a big difference. This is one reason why it makes sense to start building credit as a student; the younger you are when you get your first card, the longer your credit history will be. You may also need to start building credit as a student so you’ll have a good credit history when it comes time to make all those adult purchases, such as buying a car or a house.
While building credit as a student is a great idea, your efforts can also backfire if you don’t go about them properly. Fortunately, with a little bit of research and effort, you can start building your credit responsibly. Start with these five tips to help you out.
Capitalize on the Credit of Others: If your parents or older relatives have a good credit history, you may be able to take advantage of their responsible behavior. There are a few ways to do this. First, your relative could list you as an authorized signer on one of their accounts. You don’t need a credit check to do this, and in fact, they never even need to give you physical access to the credit card they are adding you to. Just adding you as an authorized signer is enough to have the card listed on your credit report. With it comes the payment history, the credit limit and balance, and the account age. So, if your parent has a credit card with a $15,000 line of credit that they have had and been making on-time payments on for fifteen years, if they add you as an authorized signer, all of a sudden it looks like you do to. Just make sure that the card they add you to doesn’t have a high balance or a history of late payments, as these things could actually appear as negatives on your credit report.
Ask for a Co-signer: Cosigning is different than making you an authorized user. When you apply for a card, you can apply individually or with a co-signer. If you have a co-signer, the account is in both of your names and both parties are responsible for the debt. You can be more than just an authorized user if you elect this option; you can apply for your very own credit card and just have a parent or relative with good credit and/or an income sign to guarantee that if you don’t pay, they will. Having a co-signer can allow you to qualify for better credit cards, with better terms, than you might get on your own. Just remember that the co-signer is doing you a favor and that if you don’t pay, they will be stuck. That could create a lot of family problems and guilt on your part, so it is essential to be responsible here.
Get a Student Card: Student cards are similar to adult cards, but often have a lower limit and/or a higher interest rate. Obviously most students won’t quality for many of the cards covered on our Best Credit Cards page. The terms of the card aren’t as advantageous as an adult card, but these cards are usually pretty easy to qualify for. In fact, on some college campuses, credit card companies offer attractive incentives such as free merchandise just to get you to fill out an application (although laws going into affect this year make this practice illegal or at least more tightly regulated). Be sure to check out our overview of the Best Student Credit Cards, and do your research before signing up for a card. Annual fees, over the limit charges or late fees could cost you a pretty-penny if the card is used improperly, and could actually hurt your credit instead of help it in some cases.
Consider Secured Cards As Good Starter Cards: If you can’t qualify for a student card, a secured credit card can still help you build credit. With a secured card, you put up cash in a special account to act as collateral. For example, if you put up $500 cash, you have a $500 credit limit. These cards may charge fees, or higher interest rates or both. However, many secured cards either convert to standard cards after a period of good behavior, or open the door for you to build your credit history and get a standard card from another creditor. The major question to ask when buying a secured card is whether the creditor reports your account and behavior to the bureau. If they don’t, there’s little point in getting such a card.
Look Into Store Credit Cards: Almost every store from your local department store to your local big-box discount retailer offers a credit card to customers specific to that store. These cards can sometimes be relatively easy to qualify for, especially if you have some income. The major benefit to store cards, however, is that it may be harder for you to get into financial trouble with them. A general purpose Visa or MasterCard that is designed to build your credit may make its appearance for a late night pizza or bar run, leaving you to pay the bills later. With a store card, this is less likely to happen.
Regardless of which option you choose to start building your credit, the key is to be responsible. Check your credit report once a year for free from each of the major credit bureaus to make sure your credit behavior is being reported accurately. Don’t charge more than you can pay in full each month, pay your balance on time all the time, and don’t go over the limit. The card should be used to make a few small purchases and then paid off and left at home until next month.