Credit History for College Students

As a college student, you’re busy gathering the knowledge you need to pursue your chosen career. You’re also learning how to be an adult and navigate financial decisions, large and small, that set patterns for how you handle money. Those first credit offers, opened accounts and loans all begin a personal credit history – a financial profile – of you. If you make wise choices and handle your responsibilities well, you can use this time to build a firm foundation for a positive credit history that will make starting out much easier.

Elements of a Credit Report for College Students

First, realize what credit reporting agencies are looking for when they set their procedures to calculate your creditworthiness. Payment history and credit utilization carry the most weight, with the length of credit history, mix of credit types and number of recent applications filling out the profile.

• Payment history looks at whether you pay what you owe on time.
• Credit utilization analyzes how much of the credit available to you is in use. Ideally, this figure should not exceed 30 percent.
• Length of credit history dates from your first account that is still active. Being able to keep these initial accounts that you open now in good standing is valuable for the long term.
• Mix of credit types checks for a balance between revolving credit and installment loans—credit cards, for example, versus student loans or auto loans.
• Number of recent applications evaluates activity to open new accounts. A flurry of inquiries can signal trouble, so you want to refrain from attempting to open too many new accounts at once.

Building Credit as a College Student

Often, a lack of credit history is cited as the greatest challenge to building a credit history. However, a clean slate is not a bad place to start. Financial institutions may be reserved in establishing initial lending limits or setting terms and conditions, but young adults have a number of venues to consider as starting points.

• Student Loans — Undergraduates can apply for subsidized or unsubsidized federal loans, depending on financial qualifications, as well as private student loans. Graduate students have access to federal Direct PLUS loans. Even if you’re lucky enough not to need one, getting one can start your history. Student loans are considered installment loans.
• Student Credit Cards — While credit cards labeled specifically for students are limited, most financial institutions have accounts that are designed to meet the needs of young adults that are trying to balance life with furthering their education. Keep in mind that credit card debt is seen as revolving credit.
• Housing — According to Money, “More property managers are reporting tenants’ rent payments to credit bureaus.” It’s mostly large property management firms, and not all credit bureaus use this type of information. However, with more college housing tied to nationwide property management chains, it’s a trend to note.
• Auto Loans — While a college student may have challenges in qualifying for an auto loan alone, having a cosigner or being able to also have your name on the loan may make an auto loan count. Ensuring you keep your GPA up may also help with approvals and interest rates. Auto loans are classified as installment loans.
• Store Credit Cards — Stores are often eager to issue their own store credit cards. Most work just like any other credit card. However, they may not offer promotional zero-interest annual percentage rates, and their APRs may be higher than those on Visas or Mastercards, for example—conditions that make paying off monthly balances a must.
• Secured Credit Cards — Secured cards look and work like traditional unsecured credit cards, but they require that you keep a deposit with the card issuer to cover your credit limit. Using the card still entails monthly payments because the deposit secures the card.
• Authorized User on Family Credit Cards — A family member can authorize you as a user on their account, and you’ll be issued your own card. That card, however, is tied to their account, and bills for purchases will go to the primary cardholder. Being an authorized user works best with clear guidelines for what charges are permissible — gas, groceries or school supplies, for example.

Something important to acknowledge is that having a cosigner or becoming an authorized user on someone else’s account can impact not only your credit history and credit score but also theirs. If you default on a loan, your cosigner will become responsible for the debt. Likewise, if you run up balances on a credit card as an authorized user, the primary cardholder is obligated to pay the bill.

Making Financially Responsible Decisions as a College Student

Ultimately, everyone you will ever do business with really wants assurance for just one question: Do you pay your bills on time? It’s the most important element on a credit report. For most of us, being able to do that means managing our financial resources carefully through budgeting that matches our cash flow.

• Budgeting is a process of identifying all expenses for a period of time and allocating funds to cover them. Needs have priority, while wants must rely on any funds left. Budgets can be structured for any time period—weekly, biweekly, monthly, quarterly, semi-annually or annually, for example. In fact, creating weekly mini-budgets may be crucial to staying on track for the monthly budget. Likewise, for longer-range planning, sticking to the monthly budget may be vital to seeing out the plan for the next six months or year.
• Cash flow addresses how money moves in and out of your possession and is ultimately what makes or breaks a budget. Incoming funds need to be in sync with the bills you need to pay. Managing cash flow can be especially challenging for students because loan disbursements are awarded in lump sums at the beginning of a semester and have to last for the duration. Meanwhile, working income is often limited, and the same may be true for financial support from family. Regardless, you must be aware of when you will receive funds and when you must disburse money.

Neither budgeting nor cash flow are static elements. Unanticipated expenses may pop up, needs may change, or you may earn a windfall like a grant. You may need to temporarily shift budgetary allocations for the first situation, completely rework your budget for the second or quickly squirrel away any excess in savings while staying the course for the third.

Keys to mastering the art of budgeting and cash flow are a blend of past, present and future—tracking spending, staying within your budget and setting financial goals so that you can avoid unnecessary debt. Know exactly where your money went, what you have to work with right now and how much you’ll need for the future you envision.

Staying on Track for a Stellar Credit History

Building and maintaining a solid history takes time and consistency. As with anything worthwhile, a short list of things to do versus things to avoid can help.

• Do pay bills on time. In an age where bills are paperless and often little more than a quick text or email reminder that your statement is ready, it can be easy to miss a payment. Be sure to follow up on those reminders, log in and actually set up a payment. If you miss one, call the creditor immediately to set up payment and ensure the oversight won’t appear on your credit report.
• Do view utilities as necessities for a clean credit report. While most utility companies don’t help you build credit, they will ding your credit if you fail to pay a bill or are late in paying. This can become an issue if you’re renting and sharing utility bills with roommates. The person with their name on the bill is responsible for it.
• Do differentiate between wants and needs. When you’re surrounded by classmates who are spending big, having to be more conservative with finances can be challenging. Even some educational or professional opportunities may come with a price tag that might entail a loan for you. Learning early on to stay within your means is a lifetime skill. Use your money toward making your dreams come true, but skip keeping up for the sake of keeping up.
• Do limit hard credit inquiries. Every time you apply for credit or a loan, the potential issuer is going to check your credit report through a hard inquiry. Hard inquiries appear as part of your credit record. Having a number of inquiries in a short period of time can erode points from your credit score—especially if applications were declined.
• Do limit credit card usage. Having your own credit card is important, but the goal should be to spend only what you can safely budget to pay off monthly. Using it strictly for necessities may actually help keep you from using it for luxuries you really can’t afford right now. Letting balances ride month to month can accrue hefty interest, and having more than 30 percent of your credit limit in revolving debt can erode credit.
• Do keep a close eye on your credit score. Monitor your credit report as if it’s your academic financial transcript. Everyone is entitled to one free full credit report from each of the three major credit reporting agencies each year — Experian, Equifax and TransUnion. You’re also entitled to a free report if you have a credit application denied. As the USA.gov website states, “AnnualCreditReport.com is the only website authorized by the federal government to issue free, annual credit reports from the three CRAs.”

Learning How to Maintain Your Credit for Life

Gathering debt is a common part of getting a quality college education so making strong, positive financial decisions right from the start builds a solid credit foundation that will take you into the next phase of life — securing a good job, establishing an apartment or home, and buying a reliable car.

If you’d like to learn more about managing your personal finances, check out the financial education resources from KOFE — Knowledge of Financial Education — on our La Capitol Federal Credit Union website. The resources there are free for La Cap members, and they’re the perfect way to get you started in the right direction.