How to Help Your College Student Build Credit

If you have a college-age child, now is a great time to start educating them on how to build credit. Here are some tips to help them build a good credit score.
 

Having a good credit score is an important part of your financial life. It significantly impacts your ability to make big money moves later. That’s why it’s vital to start working on building a credit score as soon as possible.
 
If you have a college-age child, now is a great time to start educating them on how to build credit. In fact, it’s one of our recommended items on our back-to-school financial checklist. We’re here to guide you on the big questions like “should college students have credit cards?” and how to help your young adult make smart choices for the best financial future.

What is a Good Credit Score?

A credit score is a number that is used to predict your near future credit behavior, based on indicators from your previous and current credit habits. 

A credit score helps lenders determine whether you’re worthy of a loan, as they take things like whether you make on-time payments and the amount of debt you’re already in into account.

Credit scores also impact the interest rate you’re offered on future loans and can even be used for situations like tenant screenings when you’re trying to rent a new home.

A good credit score is typically between 670 and 739, while scores over 800 are considered excellent. A high score indicates that you’re a responsible credit user and will make lenders feel more confident about working with you.

Understand the Importance of a Credit Score

Knowing how to build credit is an essential life skill that you should be helping your college student learn. Negative credit behavior can stay on a credit report for years and impact their ability to borrow money for a home or a car or submit an apartment rental application. A poor credit score can even prevent them from borrowing anything at all.

Banks can also ask for your credit score when opening new checking or savings accounts. Utility providers can also ask for your score before providing services, and some employers will check your score before making a job offer. That’s why it’s crucial that your college student learns how to make responsible financial decisions now.

How to Build Your Credit Score as a College Student

There are plenty of ways that students can start building credit. Before they head off to college and leave home for the first time, sit down with them to discuss budgeting if you haven’t had this conversation already. Whether you’re helping them pay for college or not, there will still be personal expenses that come up, so they should know the basics of keeping within a budget. 

Once they have an idea of how to manage a budget, setting up their own checking and savings accounts is a great next step. From there, it may be time to encourage them to look for a source of income. Many colleges have on-campus part time job opportunities, or they could look for something in their new community that fits their interests.

With some money coming in, it may be time for them to think about their first credit card. This is an important conversation, especially as using credit cards to build credit can go wrong quickly if they aren’t used responsibly. 

You could start by adding them as an authorized user on your own credit card accounts to help get their score started, while monitoring their spending. This is a good way for them to build credit before taking out their own card and get used to looking at statements and paying their bills on time. Another good way to help your student establish their credit is using a secured credit card. FNBT offers secured credit card optionst hat allow money to be pulled from a corresponding savings account pledged as a security for the credit card.

Some lenders offer credit cards specifically for students, with many offering perks like free museum entry or discounts at popular local hangouts. Before they open a card of their own, though, remind them to only open one at a time to avoid debt building up and to make money management easier. Educate your student about paying bills on time and in full to avoid interest payments. Also, let them know how compound interest works when it comes to credit card debt.

Advise your student to avoid maxing out their credit card limit, even if they plan to pay it off quickly. Let them know how a credit utilization score works and how they can check this on their credit report, while making sure they’re aware of how and where to check their credit report at least annually.

Finally, when your student is approaching the end of their college career, or after the end of their first year with a credit card, it’s a good time to look at opening a different line of credit to boost their “credit mix.” Student loans and credit cards are a great place to start, but adding a car loan or opening a store card can also help boost their credit score.

What Affects Your Credit Score

Some of the key factors that go into determining someone’s credit score are:

• Payment history
• Type of credit or loan
• Current amount of unpaid debt
• Credit Utilization
• How long loan accounts have been open
• How much available credit you’re using (credit utilization score)
• Any history of bankruptcy, foreclosure, or collections

Not every credit score will be the same as all these factors, and more, go into determining the number. The factors used to calculate the score, the source of the data, and even the day the data is collected can all impact the final number and will likely fluctuate in any given week.

Why is it Important to Build Credit in College?

With nearly 20% of Americans having bad credit, learning good financial habits at an early age can set your child on the right path from the get-go. And since credit scores impact so many elements of your financial life, helping your student build a positive credit score sooner rather than later will be hugely beneficial.

Those college years will be over before they know it. When they graduate, they’ll start looking for a job, buying a car, and thinking about renting or buying a home, they’ll be grateful that you helped them start their credit journey when they were still in school. 

Especially if they’re wondering how long it takes to build a credit score and think their decisions now can be corrected later, it’s good to remind them that it can take at least six months to build a score and even longer to fix bad credit. No one wants to delay their big life goals because they were reckless with their money in their college days.

Help Your Student Start Building Credit Today

At First National Bank and Trust, we want to help you and your family reach important money milestones at every step. That’s why we treat our customers like family. Because when our community thrives, we all benefit.

We offer resources that can help you start financial conversations with your kids and our banking team is on hand to suggest the best products for both you and your children. Whether you’re applying for a personal credit card and helping your student build credit, or thinking about a new loan yourself, contact us today or stop by a branch to get started.