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INSIDER SECRET: Becoming an authorized user on someone’s credit card can be a good way to build your own credit history.
Building strong credit can be a daunting task for just about anyone. But if you are a college student, this can be exceptionally hard. With little to no income, student loans and no credit history, many students start their credit journey in the hole. Fortunately, there are some simple habits that any student can adopt to improve their credit by graduation.
Habits for Building a Good Credit History
1. Manage Existing Credit Lines Properly
If you currently have loans or credit lines — student loans, car payments or credit card accounts — your first order of business is to make the required payments on these accounts on time, every month. For many student loans, you aren’t required to pay anything until after graduation (but you certainly can start paying now, reducing the total amount of interest you will pay). But for other accounts like car loans or credit cards, you will have a minimum required payment each month. By making this payment on time every month, you will start developing a solid record of on-time payments. And because 35% of your FICO credit score is based on payment history, this habit will increase your credit score over time.
For credit card accounts, you should consider paying off the full balance every month. Nearly all financial advisers and credit card experts agree that not carrying a credit card balance is a smart move; the interest rate is simply too high.
1a. If You Don’t Have Any Credit Lines, Open One
If you are a college student and don’t have any loans or credit accounts, opening one is a great way to start building your credit. For most, the easiest way is to open a credit card targeted for students, like many of these on our list of the best credit cards for students. These cards often have lower qualification criteria and are ideal for students. As mentioned above, always pay off your credit card balance in full every month. If you are earning miles, points or other rewards on your card, the amount you will pay in interest on the card balance will negate any benefits you earn. If you can’t pay off the credit card every month, it’s probably best to not open the account.
2. Become an Authorized User
Many parents allow their college-age children to become authorized users on their credit cards. If your parents or other family members are open to this, they can add you as an authorized user, which will help to establish your credit. As an authorized user, you receive a credit card with your name on it, but the primary cardholder is ultimately responsible for making payments on the card. So be sure that you have a clear understanding with the primary cardholder before you spend.
3. Monitor Your Credit Score and Report
As soon as you open any loans or credit accounts, you will have both a credit score and a credit report. You should review these several times a year, ideally every month. There are several free sites such as creditkarma.com or credit.com will give you a free unofficial credit report and score each month. You can also check to see if your credit card provides a free monthly credit score — many cards now do. In addition, each of the major credit bureaus, Experian, Equifax and TransUnion will provide you with a free credit report once every 12 months.
While simply monitoring your credit score and report will not technically improve your credit, it will help prevent errors or fraudulent accounts from ruining your credit. There are countless cases of people being denied for loans, only to find out that someone opened a credit account in their name years before.
Regularly monitoring your credit report and score will alert you to any new accounts or account changes when they happen instead of years later. Start this habit while you are in college and you’ll be in great shape in the future. If you do find an error on your credit report, be sure to take the necessary steps to have it corrected.
Even if you are a full-time student, you can take steps now to start building your credit. By managing your existing credit, responsibly opening and using new credit lines and monitoring your credit reports, you can establish a credit history or significantly improve your credit by the time you graduate college.
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