Ways to Build Credit as a Student – U.S. News & World Report
- January 5, 2019
Featuring Chris Dlugozima, Education Specialist
Establishing credit while you’re in school can help make the transition into post-graduation life much easier.
Good credit can help you qualify for lower interest rates on a student loan refinance, pass an employment background check or get approved for an apartment lease. But when it comes to building credit, students’ options may be limited due to their age and the length of their credit history.
“The irony of building credit is that you have to show that you can put yourself into debt and then get out of it,” says Paul Golden, media relations director at the National Endowment for Financial Education.
If you’re not sure how to build credit, here’s an overview.
What Is Credit?
While demonstrating you can use credit responsibly is important, some young people shy away from it altogether, Golden says. “They’ve seen their parents and older peers get in trouble with credit,” especially with credit card debt. But you can better avoid the pitfalls and enjoy the benefits of good credit by first understanding how it works.
Credit is money that a bank or credit card issuer lends you, with the agreement you’ll pay it back according to certain terms and with any applicable fees. Generally, you’ll need to be 18 to apply for a credit card, although the age restriction differs by state. Under the Credit CARD Act of 2009, there’s an extra age restriction if you want to apply for a credit card: You’ll need either a co-signer or proof you have the income to make payments if you’re younger than 21.
Once you take out credit, such as a car loan or credit card, the lender will typically report your account information to the three credit bureaus: TransUnion, Experian and Equifax. Each bureau captures that information on its own version of a credit report. A credit score, generally on a scale of 300 to 850, is a numerical assessment of how well you’ve managed borrowed money. A higher score indicates you’re a lower credit risk.