Building Credit: A Primer for College Students or Recent Grads

Building a good credit history can seem like a daunting task, but if you begin while you are in college it really isn’t difficult. Set yourself up for future success by taking small steps now that will help you be ready for the “real world” post-graduation. Establishing credit doesn’t mean that you will immediately go down a rabbit hole of debt. That type of situation is completely avoidable with a little basic education and the right mindset.

Why Should I Care About My Credit Score?

Most people are aware that their credit score affects their ability to secure a mortgage or an auto loan. But did you know that your credit history and score also affect the rate you pay for your student loans? That’s right – the lower your credit score, the more you will pay. Your credit score is also examined by parties you might not expect: insurance companies, landlords, potential employers, and utility companies, just to name a few. Your credit history is a measure of your responsibility as an individual, and anyone who has financial dealings with you is interested in what it reveals about the risk of doing business with you.

What is a Credit Score?

A credit score is basically a summary of your relationship with money. It lets potential creditors, landlords, and employers get a peek at how you handle finances. Do you pay your bills on time? Are you making excessive purchases? Do you have a variety of credit accounts? There are five factors that comprise a credit score:


A history of on-time payments is critical to maintaining a healthy credit score. This includes both bills and monthly debts, such as rent.

30%        AMOUNTS OWED

This refers to the total amounts owed to your various creditors. This total includes student loans, auto loans, credit cards, mortgages, etc. Having a lot of debt doesn’t necessarily mean you will have a lower score, but it is a contributing factor.


In general, the longer your credit history, the higher your score. This includes how long you have credit accounts open, how long you keep them open, and the average length of time since you’ve used each account.

10%        CREDIT MIX

This refers to the different types of credit accounts under your name, including home loans, auto loans, credit cards, utilities, etc.

10%        NEW CREDIT

Opening several new lines of credit in a short period of time can lower your credit score.

How to Build Your Credit Score

As a college student, one of the easiest ways to build your credit score is to have your parents add you as an “authorized user” on one of their credit cards. If your parents have good credit, your score automatically receives a little boost from their good ratings. And you are unlikely to develop bad credit habits with your folks overseeing your spending.

Alternately, you can get your own credit card. There are a host of cards designed specifically for students, most with lower credit limits so you can’t get yourself into trouble. Keep in mind that you will need some form of income (such as a part time job) to qualify, or if you are under age 21, a co-signer may be required.

If you are unable to become an authorized user on your parents’ card or to open your own card, consider a “secured card”. This is a credit card that is backed (secured) by a savings account, so you will never be able to charge more than you can afford. Use the card for small transactions and pay it off each month. Demonstrating responsibility here will establish good credit.

It is a good practice to pay your credit card in full every month. This prevents the build-up of interest charges and keeps you living within your means. Make sure to pay the bill on time. In fact, make sure you are paying all your bills – cell phone, internet, rent, utilities – on-time. Each vendor that does business with you has the opportunity to negatively affect your credit rating, so make it a practice to be timely with your payments.

Avoid These Habits

Just as there are things you can do to help build good credit and achieve a higher credit score, there are habits you should also avoid.

Avoid carrying high balances. Emergencies come up, and it’s tempting to allow your credit balance to increase instead of paying off your card each month. If you find yourself needing to carry a balance, pay as much as you can each month, even if you have to stretch a little. The sooner you pay down the card, the better off you’ll be.

Opening multiple lines of credit simultaneously is another practice to avoid. It’s a red flag to creditors that you may not be responsible with credit. Multiple credit inquiries negatively affect your credit score. Do a little bit of online research, comparing the benefits of different cards, then choose the one that best meets your needs and stick with it instead of hopping from card to card.

Conversely, closing cards can also negatively impact your credit history. Creditors are looking for longevity and stability in cardholders, so opening and closing multiple cards doesn’t do you any favors. In fact, it shortens your credit history and lowers the amount of credit you have available. Again, find the card that meets your needs and stay with it.

And one thing you should NEVER do is co-sign on a credit card for a friend. You have no ability to control how or when they pay their debts, and if they don’t pay, you are on the hook for the debt. Your credit score is negatively impacted for their bad behavior. Avoid this mistake at all costs.

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