Just ten years ago, getting a credit card to build your credit history in college was easy. Credit card companies set up tables all over campuses, handing out T-shirts and pizza if you signed up for a card.
But after the Credit Card Act of 2009, things got tougher. To learn how to build your credit score now, you need to be more creative.
The Credit Card Accountability and Disclosure Act
President Obama signed the Credit Card Act into law in 2009. It completely changed how companies could target young customers.
They could no longer offer cards to students under 21 unless they had a cosigner or a full-time income. The law also banned companies from handing out free swag on campuses.
While decreasing predatory tactics towards young people is a good thing, the Credit Card Act did have some negative consequences. The law made it challenging for students to get a credit card.
As a result, they had little credit history and poor credit after graduating, making it tough to get an apartment or a car loan.
How to build your credit score while still in school
The average 18- to 24-year-old has a credit score of 630. That score puts them in the “poor” category for lenders reviewing their application.
For those students, getting a loan for a home or car will be much more difficult. And if they have student loan debt, refinancing their loans at a more attractive interest rate may not be possible.
The earlier you start building credit in college, the better it will be. That will put you in good shape for post-college life. While it’s more difficult to build your credit after the Credit Card Act, it’s still doable. These five tips can help you get started.
1. Become an authorized user
If your parents or other relatives have good credit, they can give you a boost by adding you as an authorized user to their credit card. Credit bureaus will link your name and credit to their history and credit usage, which can give your score a big jump.
You can become an authorized user and reap the benefits without ever using the card. If your family is comfortable with you using it occasionally, make sure you understand which purchases are acceptable and which are not.
If your family agrees to this approach, this is one of the easiest and fastest ways to build your credit.
2. Research student credit card options
While your credit card options may be limited, companies have created certain credit cards for students with no credit.
These cards tend to have low credit lines and higher interest rates than other cards. But if you use them for routine purchases like gas and groceries and pay them off every month, you can build your credit without paying anything in interest.
Getting a card while in school can help you build good habits. Review your statements regularly, track your expenses, and pay off your balance in full every month. Keep at it, and your credit score will go up.
3. Get a secured credit card
If you don’t have enough income or a cosigner, you may still be able to get a secured credit card. With a secured card, you deposit a certain amount of money to your account. That amount is your credit line.
For example, if you deposited $500 in your account, you could use your card for up to $500 worth of purchases. Once you hit $500, you cannot charge anymore. You have to make payments before you can use the card again.
A secured credit card is safer than traditional cards because you can’t rack up thousands of dollars in debt. You can only spend the money you’ve already deposited. It’s a good way to build your credit score safely while establishing smart financial habits.
4. Open a credit builder loan
If you don’t know how to build credit with no credit, a credit builder loan can be a smart way to begin your history.
This type of loan is an alternative to secured credit cards for people who don’t have the initial deposit companies require. Credit builder loans are not as well-known as credit cards or secured cards, but smaller companies and credit unions usually offer them.
These loans work differently than other forms of credit or loans. When lenders approve you, they build in a safety net for themselves. The company deposits money into a savings account, but you cannot touch it until you have paid off the loan.
The loans are often small, some as low as $100 and capped around $1,000. If you make your payments on time, you will establish your history and improve your score.
One study showed that borrowers saw an increase of 35 points after six months of timely payments. Of course, if you miss payments, your credit score can take a hit.
5. Apply for a store card
Store cards have lower requirements for their credit card applications, so it’s possible to get a card as a student without a cosigner or full-time income. They often have low credit lines and very high interest rates, so be absolutely certain you can use the card responsibly before applying.
Pick a favorite retailer and a place you shop regularly. Use the card for your purchases, but control your spending so you don’t rack up interest charges. Pay the card off in full each month, and you will reap all of the benefits without hurting your bank account.
How to start your credit history
While changes in the law made it more difficult to get credit cards and build your score, it’s still doable. These five tips can help you establish your credit and improve your score. That will help a long time after graduation when you try to rent a home or purchase a car.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|