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College Finances: How to Build Credit as a College Student

college student how to build credit

I am a college student looking for a credit card. When I tell my parents this they say, “no, you don’t need one”. I feel that I am financially responsible and in control of my money. I am not looking to spend money I don’t have but merely to build credit. I’ve read all about college kids in debt, etc. But what about the rest of us that are responsible and ready to start our lives? How do I even get a credit card? And is there any better way to build credit?

While it is smart to take an interest in managing your own credit. But you need to be careful when you begin this journey. There are more than a few perils along the way.

First, you should consider why you need to ‘build credit’. Sure, credit scores are being used for more things these days. It’s even possible that your college checked your score before accepting your application for enrollment. But typically, the only time that you really need good credit is when you want to borrow money.

In fact, you probably won’t need to have much of a credit history until you wants to finance a major purchase like furniture, an auto or home. So there’s probably no hurry to ‘build credit’.

That’s not to say that you shouldn’t get off to a good start now.

One advantage to getting a credit card early is that you can begin to establish a consistent history of responsible use of credit. Of course, the younger you is, the more likely that you’ll fall into trouble.

You need to remember that having a credit card does not necessarily help your credit rating. If you get a card with a low credit limit and pays your bill in full each month you will begin to improve your credit score.

But, that same credit card could also hurt your credit score. All you have to do is to begin to carry a monthly balance. In fact, if you just have a credit limit that’s too high in relation to your income, you will be less attractive to future potential lenders.

Is there another way to build credit? Not really. There are other things that go into your credit score. But most of the information relates to how much credit is available and how dependable the borrower has been. So information on credit cards is a big portion of most young adults’ credit rating.

Once a year you should get in the habit of checking your credit report. There will be a small charge unless you’ve been refused credit. The three major credit reporting agencies in America are:

  • Equifax, PO Box 740241, Atlanta GA 30374-0241; 800-685-1111
  • Experian, PO Box 2002, Allen TX 75013; 888-experian
  • Trans Union, PO Box 1000, Chester PA 19022; 800-916-8800

Getting a credit card shouldn’t be too hard. On most campuses credit card companies are aggressively going after students. If you don’t have

a regular source of income you may need your parents to co-sign on the account.

You should recognize that a credit card is a dangerous tool. Less than 50% of all credit card accounts held by students are paid off each month. It’s very easy to charge a few things during the month only to find that you don’t have enough money to pay the bill when it comes. According to Nellie Mae the average college undergraduate carried a balance of over $2,700 in 2000. That’s a lot of debt if you have limited income.

If you feel you can’t use credit responsibly, you would be wise to wait.

When you do get a card, you should leave it at home. The only time you need it is when you have planned to make a specific purchase and you know that you have the money to pay for it. Carrying the card with you is an invitation to make impulse purchases. Very few students can resist that temptation for long.

In fact, you might do better with a store credit card. The reason is simple. It’s hard to buy pizza or movie tickets on a Sears’ card.

Given what’s known through research and statistics about college students and credit, you would be wise to move cautiously. You need to recognize that most students are not ‘building credit’. Instead they’re damaging their credit worthiness and digging a financial hole that will make it hard to rent apartments and buy cars when they graduate. Hardly a smooth road to adulthood.

Gary Foreman is the editor of The Dollar and newsletters including “Financial Independence”. FI is designed to help people explore how they relate to money and reach their financial goals.

5 thoughts on “ College Finances: How to Build Credit as a College Student ”

    This is a horrible article. Most students, like myself, who want a credit card for the sole reason of establishing credit are not the kind of students that go crazy and buy kegs and pizza every night without an income. You wrote this article as if the question was asked from an irresponsible middle schooler. Know your audience.

    Jamie December 31, 2012 at 9:26 am

    I am sorry you were disappointed by this article. There are many people–not just irresponsible middle schoolers–who get in trouble with credit and I think the author was trying to guard against some of the common traps that people get into. What sort of advice would you give about building credit as a student?

    I agree with the responsible student. We are reading this article for help, not to tell us what we already know. Furthermore, I think whoever wrote this article should realize that since the passing of CARD credit card companies are not targeting college students as much as they have in the past. In fact, getting an unsecured credit card without credit is almost impossible. (Or at least I haven’t found one yet)

    Category: Credit

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