Get Ahead: Start Building Credit In College

Between balancing a social life, work, studying, and sleep, most college students don’t have enough time to think about their credit. In fact, a study revealed that 18-24 year-olds have an average credit score of around 630 - a subprime score.

Soon after graduation, your credit score has a larger effect on your financial future. It impacts whether you can get a loan, the type of credit issued, and your interest rates.

Instead of waiting to boost your credit score, college is a great time to start, as today's students will want access to auto loans, credit cards, and mortgages. Here are some ways that you can start to build up credit during your college years.

Secured Credit Cards

Secured credit cards are easier to get if you have no credit or a bad credit history. These cards work like bank accounts. You deposit a sum of money, usually between $300 or $1,000, and you can then draw upon the funds in the account. You pay back the credit until the balance is at the original amount.

If you make on-time payments, your credit score will increase. Watch your score. Down the road, you may qualify for an unsecured credit card.

Student Loan Payments

Student loans are unsecured debts. The average college graduate leaves school with more than $37,000 in student loan debt. This can take years to pay off.

Many students don’t realize the benefit of making payments on their interest-bearing loans while they’re in school.

First, you'll have less to pay when you graduate. Second, compound interest will cause the size of the loans to grow while in deferment. So, you can avoid paying some of this interest by paying while in school. Finally, one of the biggest components of a credit score is your payment history. By making payments in college, you'll start building a solid credit score and payment history.

Low Balance Credit Cards

If you have a short credit history and lower income, it can be a good idea to apply for a low balance card. Usually, these cards will have small credit limits. This keeps borrowers from running up huge balances immediately. They can show lenders that you can be responsible if you pay them off in a timely fashion. Eventually, you will be able to apply for a higher credit limit.

Avoid Collections

Pay your bills on time. It’s easier said than done, especially when you’re living on your own for the first time. If possible, make a calendar will bill dates or set up auto-pay.

If you can’t pay the full bill balance, like a doctor bill or a credit card bill, it's important to pay at least the minimum balance. If you absolutely can't pay any amount, call your credit card company or doctor, and see if you can set up an alternative payment plan.

Failure to pay, and failure to make any type of payment, will be a big negative mark on your credit report. This can lead to higher interest rates and difficulty getting credit in the future.

Practice Good Habits

To continue building good credit in college, you'll need to follow the habits of those who have good credit.

Like noted above, you’ll need to make on-time payments. Additionally, you'll want to make sure to keep your credit utilization percentage low. Using little (less than 10 percent) of your available credit each month boosts your credit score.

Finally, it's important to leave credit cards accounts open. This is important for two reasons. First, it increases the average age of your accounts and it will generally lower your utilization rate. It may be worth it to shut your card down if there is a high annual fee, however.

You can start building credit in college. You'll pay less in interest, get loans for large purchases, get good homeowners insurance rates or cheaper auto insurance with a good credit score.