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 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
1 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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective Sep 1, 2020 and may increase after consummation.