Building Credit in College: A Head Start for Your Financial Future

Establishing credit while you’re in college can provide a significant advantage once you graduate. Not only will it improve your chances of securing an apartment, but it can also help you qualify for auto loans and lower insurance rates, among other benefits. At O1ne Mortgage, we understand the importance of building a solid credit history early on, and we’re here to help you every step of the way. Call us at 213-732-3074 for any mortgage service needs.

Ways to Start Building Your Credit History

There are several strategies you can use to start building your credit history from scratch. Here are some options to consider:

Get a Secured Card or Student Credit Card

Student credit cards are specifically designed for college students. They typically don’t require a security deposit for approval and often come with rewards, no annual fees, and other benefits. However, some student credit cards may require a minimal credit history for approval. If you’re under 21, you might need to show sufficient personal income, although older applicants can include other income sources.

If you can’t get approved for a student credit card, a secured credit card is a viable alternative. This type of card usually requires a security deposit of $200 or more. Regardless of the card type, maintaining a low credit utilization rate and paying your balance on time can help you build a positive credit history. You can even avoid interest charges by paying your balance in full each month.

Become an Authorized User

If getting a credit card on your own isn’t an option, consider asking a parent or another trusted individual to add you as an authorized user on their credit card account. Ideally, this account should have a history of on-time payments and a low utilization rate. Becoming an authorized user doesn’t require a credit check, and the account’s payment history will appear on your credit report, helping you build credit.

You may receive a card linked to the account, but it’s essential to discuss any ground rules or expectations with the primary cardholder to avoid potential conflicts.

Open a Credit-Builder Loan

A credit-builder loan is a type of installment loan designed to help you establish a positive payment history. When you take out a credit-builder loan, the lender sets aside the loan amount—usually between $300 and $1,000—in a savings account. You’ll make monthly payments, including principal and interest, until the loan term is complete, typically ranging from six to 24 months. The lender reports your payments to the credit bureaus, and once you finish the term, you’ll receive the loan proceeds.

To make a credit-builder loan work for you, request an amount with manageable monthly installments. Ensure the lender reports your payments to all three major credit bureaus (Experian, TransUnion, and Equifax) to help your credit across the board.

Get Credit for Rent Payments

Historically, rent payments haven’t contributed to your credit score, but Experian Boost® changes that. This free feature allows you to link your bank accounts and select bills to add to your Experian credit file, including eligible rent, utilities, cellphone, insurance, and some streaming services. Adding these bills can help improve your credit scores instantly.

Practice Good Credit Habits

Even if you don’t have a credit card or loan yet, developing smart credit habits now can benefit you later. Here are some tips to get started:

• Pay bills on time: Your payment history is the most influential factor in your credit score. Consider setting up automatic payments to avoid missing any.
• Create a budget: Review your income and expenses to ensure you’re spending within your means. Set spending and savings goals each month and track your expenses to stick to your budget.
• Limit credit card spending: While it can be tempting to charge all your expenses to a credit card for rewards, high balances can make it difficult to pay down each month and raise your credit utilization rate, lowering your credit score.
• Only apply for credit when needed: Each credit application results in a hard inquiry on your credit report, which can temporarily lower your score. Too many inquiries can make lenders view you as a high-risk borrower.

Monitor Your Credit and Accounts

Once you start building credit, it’s crucial to monitor your credit reports and accounts. Your credit reports contain a full history of how you manage credit, so review them often to track your progress and address potential issues. You can access your Experian credit report for free anytime and get free weekly access to your Equifax and TransUnion credit reports via AnnualCreditReport.com.

Managing multiple financial accounts can be overwhelming, especially if you’re new to it. Stay on top of your transactions and account balances to avoid overspending and missed payments. Even if you set up autopay, ensure you have enough funds in your checking account to cover payments. Consider using a budgeting app to connect your accounts and import transactions into one place.

Frequently Asked Questions

What Is a Credit Score?

A credit score is a numerical representation of your creditworthiness, based on your credit history. It helps lenders assess the risk of lending to you.

Can You Qualify for New Credit Without a Credit Score?

Qualifying for new credit without a credit score can be challenging, but it’s not impossible. Some lenders offer products designed for individuals with no credit history.

Why Is It Important to Build Credit in College?

Building credit in college sets the foundation for your financial future. It can make it easier to secure loans, rent apartments, and get favorable insurance rates after graduation.

Building Credit for Your Future

The financial decisions you make in college can significantly impact your post-graduation life. While you can wait to start building credit, establishing a credit history and solid credit habits now will make the transition smoother. If you’re ready to get started, sign up for Experian Go™ to access your Experian credit report and FICO® Score for free, along with tools to help you develop a healthy credit profile.

At O1ne Mortgage, we’re here to support you in building a strong financial foundation. For any mortgage service needs, call us at 213-732-3074. Let us help you achieve your financial goals and secure a bright future.