How Can I Build Credit in College?
Many students use credit cards to help build credit while they’re in college. In turn, this gives them an early start. Additionally, these tools can make your transition to post-graduation life smoother and easier. For example, an investment in a credit card security deposit can yield fruitful results down the road. Because of this, you may qualify for a mortgage or business loan not long after you get your degree.
However, most of the time, undergraduates don’t have an income, which makes it hard to raise money for a credit card deposit or loan collateral. Above all else, without a record of payment history, it can be difficult to demonstrate that you’re a reliable borrower.
Thankfully, there are many ways to get approved and start using credit cards to help build credit. In fact, lenders only require you to make a small deposit, as opposed to paying the entire amount on the card. Equally as important, since your student loans take care of your tuition expenses and living arrangements while in college, you may use the funds to invest in a credit-building plan.
Connecting Your Bills
Believe it or not, but paying your housing costs, phone bill, and other recurring costs could help you grow your credit score.
Firstly, some credit bureaus will allow you to link-in your utility payments. After that, when you take care of your balance every month, it is reflected in your background and the timely payments would boost your credit.
The type of bills that you can connect include utilities, Wi-Fi plans, phone services, and housing.
Above all else, college students should take advantage of these methods early on. Since your student loans cover rent, you will almost certainly pay it on time every month.
Equally as important, you should implement this strategy while you’re still in college. After you graduate, your bills will become larger and more expensive.
As an example, most campuses allow students to use the university’s internet, computers, dining halls, and other amenities. All of these items, which loans cover as part of your tuition fees, will turn into bills and expenses when you get your degree.
In other words, your minimal existing costs are less likely to be reported as late payments than when they become heftier.
If using credit cards to build credit isn’t an option for you, consider setting up recurring transfers into a savings account. Firstly, consumers can make automatic monthly transactions from a checking to a savings account.
Secondly, after you do so on a consistent basis, it shows that you are a reliable spender who can make timely payments.
There are certain downsides to this approach, nonetheless. Automatic transfers into your savings account, in themselves, don’t build credit. Instead, you may use them to reference your payment history when applying for a credit card or loan.
If anything, at least your own banking institution may look at that favorably.
Moreover, consumers should always be careful when they set up the frequency of these transfers. If you regularly deposit or withdraw money in or out of your savings account a certain number of times, Regulation D might prompt your bank to convert it into a checking balance.
Not only does this make the approach useless, but you may also incur additional monthly maintenance fees. This happens when your savings turns into a second checking account.
Since banks look at your credit before giving you a new account, this could also show up as an inquiry and ding your score. However, the last scenario is unlikely.
Deposits and Credit Cards
If you don’t have a strong credit score, some financial institutions will still approve your card application after making a certain minimum deposit.
For instance, putting $50 down could earn you a $200 credit card. After that, when you consistently make monthly payments and keep your card’s utilization rate below 30%, the issuing bank will likely increase your available credit.
Above all else, when you pay on-time for several months in a row, the financial institution is going to refund your initial deposit. They may also give you a larger credit balance without asking for anything down.
This is one of most effective ways to take advantage of credit cards to help build credit and an established payment history.
The Hassle of Student Loans
Many college attendees avoid taking out a loan or line of credit because of worries about student loans. After all, these payments, in themselves, are relatively sizable. Students who add another obligation to their finances only make things harder for themselves.
These concerns are legitimate but, at the same time, unfounded. Firstly, the average monthly student loan payment is almost $300 per month. A $200 line of credit, on the other hand, only requires you to pay between $25 and $40 per month. That depends on your spending.
In short, the difference this would make in monthly expenses is minimal. Meanwhile, the benefit of getting credit cards to build credit certainly outweighs the cons.
Secondly, student loans aren’t due until a few months after graduation. By that time, if you use a credit card the right way and increase your available balance, the extra funds can make it even more likely that you will honor your tuition loan payments.
For a start, the hefty monthly cost of about $300 could cause you to fall behind on other bills. Here, a credit card can ensure that all your commitments are being fulfilled. In short, it acts as an emergency fund when you need it.
Using Bills, Bank Account Transfers, and Credit Cards to Help Build Credit
Certain aspects can help college students boost their FICO score before they graduate. Reporting your bills to a credit bureau is a good place to start, especially when they’re low and manageable.
Consistently transferring a fixed amount into a savings account can further demonstrate your financial competence.
In addition, students who invest in credit cards to help build credit early on are making a smart choice.
Life after graduation can be tricky, even more so without a savings account that you could lean on. While its still early for students to accumulate emergency funds, it certainly isn’t when it comes to credit score points.
Everyone has to establish their credit at some point. It is easier to do so before graduating. After all, that’s when you have to deal with a daily job, larger bills, and, of course, student loan payments.