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How to build credit in college

As a college student or recent graduate, you likely juggle multiple priorities — from cramming for tests to working, moving into your first apartment, paying bills and learning to budget. But there’s another important task that should be on your radar: Building a healthy credit history.

When and why should you start building a credit history?

“The college years or around age 18 is a good time to start building credit, because the earlier you start, the faster you’ll be able to earn a better credit score,” explains Bill Gandolfo, Senior Product Manager of Consumer Lending, Commerce Bank.

“A strong credit score can give you access to better interest rates and loan terms, which could mean lower payments. A strong credit score and credit report also means that lenders and other companies will view your financial history more favorably, and that can make it easier for you to rent an apartment, buy a car, find a job, even get an insurance policy,” says Gandolfo.

Young borrowers should be aware that, except in certain circumstances, card issuers are not allowed to open card accounts for consumers less than 21 years of age, without a cosigner, guarantor or joint applicant who is at least 21 years of age.

What’s the difference between a credit report and a credit score?

Your credit report is essentially a summary of your credit history. It includes information about credit cards, loans and other types of credit in your name, as well as your payment history, account balances and how long you’ve held the accounts. Think of your credit report as a type of financial report card.

Your credit score, often referred to as a FICO score, is a three-digit number based on the information in your credit report. The stronger your credit report, the higher your credit score. Think of your credit score as your financial GPA.

When you apply for credit, or anything requiring a financial decision, lenders and other companies use your credit report or your credit score to determine how financially responsible you are. That guides their decision on whether to lend you money, how much and at what interest rate. Organizations also use your credit information for screening insurance and other applications.

How to build credit for a better credit score

Gandolfo says that one of the easiest ways to build credit is to open a secured credit card account that requires a deposit. “Start by making a few small purchases each month and paying off the balance on time. Once you make payments regularly, you can move to an unsecured credit card, which may offer higher spending limits and additional benefits,” he suggests.

Here are some more ways college students and young adults can build and maintain a strong credit history.

  • Become an authorized user on someone else’s credit card (like a parent or guardian) if you’re sure the bills will be paid time.
  • Pay every one of your bills on time.
  • Pay down debt and make a plan to pay off student loans.
  • Use a mix of different types of credit, like a traditional credit card, retailer-specific card or auto loan. “Some people will take out a loan and make timely payments just to build credit,” says Gandolfo.
  • Be aware of your credit limits and try to keep your balances below 30% of your available credit.
  • Look for opportunities to establish credit — like putting utilities in your name if you’re sharing an apartment with roommates, if you’re sure the bills will be paid on time.
  • Always read the fine print carefully before signing a loan, credit application or financial contract.

“It’s also important to watch the number of credit inquiries, which could negatively impact your credit score. This can happen if you apply for several credit cards or loans in a short period of time,” says Gandolfo. “In addition, getting too close to your borrowing limits can cause your credit score to drop, which could be a risk sign for lenders.”

“If you’re new to credit, there can be temptation to overuse it. Just because you can get a credit card doesn’t mean you should use it a lot or open multiple cards. Remember that you’re trying to prove your ability to manage credit,” he adds.

Check your credit report regularly

Gandolfo recommends checking your credit report at least annually to make sure the information is accurate. “You can request a free copy of your credit report from each of the three credit bureaus once a year,” he says.

Tip: Consider spreading out requests for your free credit report to get one from each agency every four months instead of getting them from all three agencies at the same time. This lets you check in on your credit quarterly instead of just annually.

If you do find errors in your credit report or accounts you don’t recognize, take action right away by following the instructions on the reporting agency’s website for correcting information.

College and young adulthood are ideal times to start building credit and maintaining healthy credit habits. That way, lenders and other companies viewing your credit score will see that you’re financially responsible — and that can provide numerous benefits as you work toward financial milestones, like buying a house or a car.

Commerce Bank has tools to help you build a strong credit history, like unsecured and secured credit cards as well as a ReadyLine of Credit.

Contact us to learn how we can help you keep a healthy credit score to give you greater leverage toward your future financial goals.

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