How to build your credit score as a college student

Students starting college want to be set up for success both during school and after – and one aspect that can help beyond the classroom is getting a head start on building credit. This might be difficult while juggling classes and possibly a part-time job, but establishing a good credit score early on can lead to several benefits after graduation.

With a good or excellent credit score, you may:

1. Have an easier time when you reach important milestones (landlords, utility companies, and sometimes even employers will check credit)
2. Become more likely to be approved for loans like auto loans and mortgages.
3. Set yourself up for more favorable interest rates on future loans.

In addition, through the process of building a good credit score, you can develop healthy financial habits such as managing debt responsibly, i.e., paying bills regularly and on time. Continue reading for some practical and actionable tips on how to build good credit, especially for those with no credit score just yet.

How credit scores are established

There are different types of credit scoring models, but the best known one is probably FICO, which uses an algorithm to predict customer spending habits and rates their financial responsibility on a scale of 300 to 850. Getting a 300 is considered a poor score and an 850 is excellent. Five factors are used to calculate credit score: payment history, credit utilization, length of credit, amount of new credit, and credit mix.

The process of building credit typically begins at age 18. Before then, most people do not have a credit score or report. This means that for many college-bound students and new college students, it’s a great time to start seriously thinking about ways to build credit.

Consider beginning student loan payments in college

One way to boost up that credit score is to consider beginning to make payments on student loans while in college. There are two main types of student loans: private (such as from a bank) or federal (from the government). Most federal student loans are deferred, which means you don’t need to make payments until six months after you graduate or drop below half-time enrollment. With a private student loan, you’ll typically have a choice of several repayment options. The type of repayment option you choose should be based on your ability to repay the loan. Let’s go over some common repayment options for private student loans:

Immediate repayment: Make principal and interest payments while in school. 

Interest-only repayment: Make interest-only payments while in school, then principal and interest payments after you graduate, leave school, or drop below half-time enrollment. 

Deferred repayment: This option means making no payments while enrolled in school and beginning payments within a set time frame after you graduate, leave school, or drop below half-time enrollment. Keep in mind that with private student loans, interest starts accruing as soon as the loan is disbursed (when your school receives funds). If you’re not making payments, the loan balance will grow while you’re in school. 

When applying for a Citizens Student Loan™ *, students can choose immediate or interest-only repayment to tap into Citizens Student Credit Builder™ * — providing an opportunity to build credit while in school. Additionally, interest-only repayment could get you a lower interest rate compared to the same student loan with deferred repayment. Both immediate and interest-only repayment options could also result in lower monthly payments after you graduate. You can see student loan repayment examples here to learn more.

While there are no eligibility criteria for borrowers when choosing a repayment option, there are eligibility criteria for being approved for a loan. Keep in mind a family’s selection is personal and should be based on the ability to repay. It's important to closely read and understand the language in your loan's promissory note, since it governs terms and conditions of private student loan repayment. And since applying for private student loans is a credit-based process, a cosigner is often needed for those who don’t have a credit score yet or have a low score.

Be sure to discuss repayment with the cosigner so each party understands how repayment will work and who will be responsible for what amount of the loan. Failure to pay in a timely manner can lead to credit problems or, worst-case scenario, loan default.

Consider a credit card to enhance your credit

Another option to consider is looking into a student credit card. There are many options out there, but this type of credit card is specific for those still in school.  If a student is confident that they can pay off purchases on time, using a credit card responsibly can help build your credit history. It may also offer other valuable benefits including rewards. Beyond a student credit card, a student may also be able to become an authorized user on a family member’s credit card. This means that the student’s name appears on the card, although it’s linked to the family member’s credit card account.

There are more options to build credit

Whether it’s credit cards or your student loans, making on-time payments is one of the most efficient ways to build credit. But did you know some credit bureaus may take other types of monthly payments into consideration when determining creditworthiness? You can check the websites of major credit bureaus to see if they provide options to report rent, utility or other bill payments that could help boost your credit score. 

Also, paying other types of loans can also create an opportunity to build credit. For example, let’s say a student can’t get to all their classes on foot and has decided to buy a car. Taking out an auto loan to finance a car and paying the bill on time can help build a student’s credit score. However, it’s important to know that this type of loan also usually requires a down payment.

Monitor your credit report

While there’s a lot to keep track of in college, it can help if students monitor their credit report. Keep in mind, it may take three to six months of credit activity before a credit score is created.  Monitoring credit is also a safety mechanism against identity theft, though not foolproof. Although a credit report is full of useful information, it doesn’t give an actual score. Most agencies offer a free report online; read reviews and make sure whichever site or app used is trustworthy.

Avoid these pitfalls

Let’s talk about the elephant in the room — how building credit can backfire. To stay in good financial health, make sure student loans and credit card bills are paid on time. Don’t miss any payments and consider setting a phone reminder to receive alerts and notifications of the bill’s due date. If you’re considering opening a credit card, be sure not to max it out. Just because the available credit limit on the card seems high, you don’t have to spend that much. Also, avoid applying for too many lines of credit in a short amount of time. If you are an authorized user, keep in mind misusing the credit card can negatively impact the primary cardholder. Being an authorized user on a credit card for someone else requires trust.

Getting started with building credit

Building credit in college can help students lay a foundation for life after graduation. If you’re ready to get started and have a plan to manage your finances responsibly, consider your options to start building credit. And don’t forget, with a Citizens Student Loan™, you could build credit while you're in school with Citizens Student Credit Builder™ * by choosing immediate or interest-only repayment. As your trusted resource for all things college, we’re here to help you with whatever you might need. From private student loans to financial tips for college, we’ll be here for you every step of the way.