Regardless of where you are in life, your credit score reflects your “creditworthiness” – it’s the number lenders use to determine if you’re likely to pay back a loan on time. In general, a higher credit score can mean you’re more likely to get a loan quicker with better interest rates. However, if you’re a student and have little to no credit, you’ll face different challenges and expectations.
Good credit scores are important for anyone, especially when it comes to getting credit cards and loans. Let’s look at how to establish good credit as a student.
What is a good credit score for a college student?
Many college students don’t have a credit history, especially if you haven’t had a credit card before. But it’s never too late to start and it’s important to build credit history. It helps open lots of doors.
Generally, a credit score of 700 is considered good and healthy. For students new to building credit, credit scores often range from 670 to 739.
Why are credit scores important for students?
A good credit score can lead to lots more flexibility, determining (in part) what kind of car you drive and where you live. With a healthy score, you can access car loans at lower interest rates and rent an apartment with more ease. (Many landlords look at your credit report before offering a lease.)
Cardholders with high scores often enjoy more perks and rewards on their credit cards, in addition to lower interest rates, potentially saving you a lot of money in interest charges.
If you’re a student and in the beginning stages of building credit, learn the basics of maintaining a good credit score and the responsible habits that can help improve it.
6 ways to build credit during or after college
There are a few ways to build credit if you're just starting out, especially if you're still in school or graduated recently.
1. Apply for a secured credit card
Secured credit cards are a common first step in building credit. You’ll “secure” your card’s credit line by depositing a specific amount of money, and in exchange, your card issuer will offer a card with a credit limit of the same amount.
You can use it like a regular credit card, and you’ll be expected to make on-time payments, also just like a regular credit card. You’ll pay interest charges on any balance you carry too.
Typically, after six months of responsible on-time payments, you can qualify for an “unsecured” account, a more standard credit card typically with no deposit required and higher limits. Look for secured cards at banks and other card issuers.
2. Become a cosigner
Ask family or close friends to be a cosigner on one of their credit cards. You’ll benefit from their responsible card use. Credit bureaus recognize your shared positive payment history on that card as your own. Most major credit cards offer cosigner options.
3. Pay your bills on time
More and more credit reporting agencies have been looking at payments of utilities and other regular bills as evidence of responsible credit behavior. When you pay your gas and electric bills on time, you’re building a healthy credit history.
4. Make student loan payments on time
Most students leave school with student loan debt, and while you’re enrolled in school, your student loans usually aren’t part of your credit history.
But once you graduate, student loan debt can actually help your credit score. While the debt can look high, regular on-time monthly payments are considered positive, responsible use of credit. The three major credit bureaus treat student loans as an installment debt and recognize on-time payments as healthy credit history.
When you make student loan payments as scheduled, you’ll start building credit history and will probably see your credit score go up.
5. Avoid taking too many credit cards
If you suddenly find yourself with lots of credit card offers, be wary. Too many credit cards can affect your credit score, mainly because you’re more likely to miss due dates or payments.
6. Start and emergency savings fund
Setting up an emergency savings fund can help with sudden unexpected expenses, a cushion to rely on instead of credit cards and the high interest you’ll pay on them.
You can start small, by adding small amounts weekly or bi-weekly. Usually, a common rule of thumb is to have at least 3 months of expenses in an emergency fund. Although many financial advisors suggest setting aside at least 6 months of expenses.