Hello, lovelies! Today, I’m going to talk about how I built my credit in college. It was honestly a lot less complicated than I thought it was going to be. I stressed out about this in my freshman year because I was a personal finance nerd and knew how important it was to start building credit early. The idea of getting a credit card just scared the shit out of me because of all the horror stories I had heard.
Well, I have a few years of having a credit card under my belt and now that I’m done with college, I can talk about what I did those few years to build my credit. This is just a general disclaimer: I am not financial planner. I am just a normal American college grad who did pretty basic things in regards to her credit. My parents didn’t put my name in any of their bills or anything. These are just things I’ve done on my own and learned that may help you.
With that said, let’s get into it.
Related – Why I Decided To Get A Credit Card In College
1.//I Did A Lot Of Research
I did a shit ton of research before getting a credit card because I was worried that it would negatively impact me if I did something wrong. I knew that it was important to start building credit early because there are people in their late twenties without a credit score who have trouble doing things like buying a house or renting an apartment. I didn’t want to deal with that, so I did my research and asked my dad a lot of questions. I definitely used research as a form of procrastination because of my fear of credit card debt. Eventually, I jumped the gun and just applied for a Discover card and never looked back. It ended up being a lot less complicated than I thought.
Here’s some of the bare bones basics when it comes to credit scores. These aren’t official definitions. You should absolutely do more research outside of this blog post. Here are some important things to know.
Factors That Impact Your Credit Score
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- Payment History (35%) – This just means paying all your bills on time.
- Utilization Ratio (30%) – This is talking about how much of your credit do you use in a month. For example, if you have a $1500 credit limit (you have the ability to charge that much money on your credit card), you should try to spend under $500 because the general rule of thumb is to spend less than a third of your credit limit. Doing that will improve your score (I’ll talk more about that later).
- Length of History (15%) – The average age of your credit history impacts your credit score. Avoid closing your oldest accounts because it helps your credit. Even though I don’t get a lot of benefits like travel points from the credit card I got in college, I’m never going to close that account because I benefit from having that old account.
- Inquiries (10%) – This refers to hard inquiries, not things like checking your score on Credit Karma (This is not sponsored by the way. It’s just the site that I use). It’s a myth that you can’t check your credit score frequently. Doing so is completely fine. Hard inquiries refer to things like getting approved for a mortgage, another credit card, or a car loan. Stuff like that. If you request a lot of credit cards in a small time frame, it negatively impacts your score. I just got a approved for a new credit card, so my score went down temporarily. Once I start using it and paying its bills every month, my credit score will be higher than it was before.
- Types of Credit (10%) – Having multiple credit lines open does help your credit score. It shows that you can manage multiple types of debt. This includes things like student loans, car loans, mortgage, credit cards, etc. (I think paying rent on time is also included in this category, but I’m not sure. It does impact your credit score though. It may be associated with payment history.)
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Again, I am not a finance expert. There’s a lot more to it than this, so do your own research outside of this purely anecdotal blog post. I’m just talking about what I learned in college when I started building my own credit.
2.//I Got A Credit Card Early
I got a credit card when I was 19. I would’ve gotten one when I was 18, but I honestly didn’t make any money back then. It wasn’t really feasible. The reason I got a credit card early was that the average length of credit history is a factor into your credit score. The longer my average credit history, the more favorable I am when it comes to managing my credit. It’s proof that I have consistently managed my credit for an extended period time. My credit score steadily climbed over the years simply from having a credit line open for longer. There wasn’t much to it.
3.//I Paid It Off In Full Every Month (I Never Kept A Balance)
I have never kept a balance on my credit card. I’ve paid my statement balance every month of clockwork. There is a myth that you should always keep a balance on your credit card. DO NOT DO THAT.
Here’s the thing, some people will say to avoid getting a credit card at all costs, but that’s not telling the whole story here. A credit card is a tool. Being in credit card debt is the issue. Do not spend more money than you have. Just because you have $1500 credit limit doesn’t mean you have that much money. You will have to pay it off on time to avoid paying interest.
This influences your credit score a lot. I would recommend automating your payments so that you don’t have to think about it. It’ll get paid off every month from your bank account. I personally didn’t automate because I was self-employed throughout college. My income one month could’ve been a third of what I made the previous month, so I didn’t automate payments in order to keep track of everything.
I have been a day late twice in the last three years, one of them was when I was in Europe and the time zones messed me up. I recently learned that being a day late doesn’t impact your credit score and Credit Karma says I have a 100% payment history, so being a little late hasn’t harmed me (yet).
4.//I Rarely Spent Over 30% Of My Credit Limit
I kind of learned this in practice, not through research. I did check my credit score fairly regularly in the beginning (like every two months), so I would notice when it fluctuated. Whenever I spent more than a third of my credit limit, my credit score would go down a few points. I was able to fix this fairly quickly. It didn’t affect my credit score long term. It would go up again when I spent less.
I’m not super strict with this rule. I usually don’t spend more than 30% of my credit limit anyway, but I don’t beat myself up about it if I do. It usually goes back up again the next month because I don’t consistently spend over a third of my credit limit. (And it’s paid off immediately.)
5.//I Took Out Student Loans
This was a surprise. I knew that having multiple lines of credit improved your credit score, but I didn’t know by how much. I didn’t take out student loans the first two years of college. I’m very lucky. I had scholarships, help from my parents, and the ability to just pay for my dorm in cash at the beginning of some semester. This is why my student loans aren’t a huge burden for me. I didn’t take out a lot and it’s not debilitating like it is for many Americans.
With that said, even though I only have four figures of student loans, my credit score went up 13 points. I think it went from 738 to 751. It was a huge jump that caught me by surprise. This happened right when I took out the loans. I didn’t do anything else. I hadn’t started paying them off yet. I just opened two new lines of credit (my student loans are through two accounts) and my credit score went up.
One thing I will say is that student loan debt and home loans are considered “good debt,” so it doesn’t negatively impact your credit score as long as you make your payments. Car loans and credit card debt are considered “bad debt,” so it does negatively impact your credit score. As I said before, I got approved for my second credit card a month ago, and my credit score immediately went down. I already knew this would happen. It’s going to go up again and be higher than it was prior to getting this credit card once I start paying that bill. Then having four lines of credit will positively impact me.
So yeah…that’s all I did: I paid my one credit card bill in full every month for three years and took out student loans. That’s all it took to build my credit score. It happened pretty gradually over the course of three years, but it was significantly less complicated than I thought it was.
Once again, this post is strictly anecdotal. This is not a definitive guide to establishing credit. I just enjoy talking about money. I would avoid getting student loans if you can but I highly recommend you get a credit card in college and use it responsibly. You will not lose any money so long as you pay the statement balance each month. There will be no interest. I think that is a huge myth when it comes to credit cards. You are are not paying more money if you use them instead of your debit card. Just don’t keep a balance and it won’t accrue interest. You can actually save money from cashback.
Okay. Well, that’s it for now. I hope this chatty post about credit cards has helped you. I’ve been pretty melancholy since Friday over the state of our country recently. So I dedicate this post to Ruth Bader Ginsburg, the reason all us women have the ability to build credit without a signature from a man <3.
Until next time!
Previous College Finance Posts
- A Practical Guide To Saving Money In College
- How To Budget In College When You Live At Home
- 13 Things I Don’t Do To Save Money In College
- How Much Money I Spend In A Week (As A College Student)
- 3 Things I Splurge Money On In College
- 6 Money Habits To Start In College
- My College Budget Under $750
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Are you still on the fence about getting a credit card in college?
These are some great tips! It’s so important to start building your credit early. I wished I took this more seriously when I was in college. Thanks for sharing your experience and insight :)!