How to build your credit score as a college student

July 03, 2024

build your credit

Establishing your creditworthiness as a college student is an important step in building a successful career. It can lead to long-term savings and more stable financial footing throughout your life.

Having good credit can help you buy a car, purchase a house, rent an apartment, and even get a job. As a college student, you may rely on credit to take out student loans. Motor vehicles and houses are examples of expenses that typically require a credit line. In addition, property managers may check your credit before granting a lease for housing, and some employers may review your credit history before extending an offer of employment.

Building a good credit history while you are a college student will help you qualify for loans and can also mean lower interest rates, which saves you money. Here are three steps to get you started, according to Caleb Lewis, associate professor of economics and finance and chair of business at Aurora University, in a presentation to AU students.

    1. Understand your credit score.

      Your credit score is a number that summarizes your credit history. Lenders rely on the number to determine your trustworthiness as a borrower.

      Three nationwide credit bureaus (Equifax, TransUnion, and Experian) collect information about your credit history, including how much credit you carry, if you pay your bills on time, your previous addresses, any liens or bankruptcies, and more. Information from these credit reports is used to determine your credit score.

      Because of its impact on your credit score, it is important to know what is on your credit reports and that they are correct. Checking your credit reports annually can also allow you to identify mistakes or fraudulent attempts to open accounts in your name. Under the law, you can order your free credit reports from the major credit reporting companies once a year.

      “It’s a really good idea to keep an eye on your credit history to make sure you know what’s going into your credit score,” said Lewis.

      The most common credit score is the FICO score, a three-digit number established by the Fair Isaac Corporation that weighs several factors: payment history, credit amount/usage, length of credit history, and types of credit. It ranges from 300 to 850, and higher is better, potentially leading to better borrowing terms like lower interest rates.

    2. Build your credit history.

      To start building good credit, you need to demonstrate that you know how to manage your credit. As a college student, one way to establish a credit profile is to open a credit card. You can do this on your own if you are over age 21, otherwise, a co-signer (usually a parent or guardian) is required.

      Another option is to be added to an existing credit card as an authorized user. This adds a card’s payment history to your credit reports, regardless of whether you use or possess the card yourself.

      Make sure to do your research when choosing a card, as interest rates, fees, and other details can vary. Once you’re approved, the key is to spend within your means and pay off your credit card each month if you can. Interest rates can be quite high for first-time borrowers, and interest fees add up quickly. 

      Lewis recommends using your credit card to make purchases that are already required, like groceries or gas, and then paying off the balance each month.

      “You are keeping track of the spending you are already doing and getting credit for it,” he said.

    3. Pay your bills on time.

      Once you have established a credit history, making payments on time and keeping balances low are essential practices for maintaining a healthy credit profile. Missed payments and high balances can be warning signs to lenders that your ability to pay is compromised.

      You’ll also want to avoid applying for too much credit in a short window of time, which can be a sign that you are borrowing beyond your means.

For more tips on how to build your credit rating, and for other resources to develop useful skills for your college experience and beyond, visit Upskill U.