You’re out of school, and now you’re free to take a moment and look at your financial position. And if it’s time to get a car for a new job (or weekend road trips) or a new apartment, a good credit score matters more than ever!
But how do you start building credit when you don’t have a credit history yet? Here are a few top tips on building your credit history from scratch.
Become an Authorized User
The first step for many college students is to become an authorized user on their parents’ credit accounts. Usually, this is a credit card in your name but attached to their credit account. This will connect your social security number to the payment history and other factors associated with your parents’ account.
Ask a Parent to Cosign
Another tactic is to have a parent cosign a loan with you. For example, a parent can cosign if you are trying to buy your first car and know you can make the payments but don’t have a good enough credit score. Cosigning makes them responsible for paying your loan if you default (so don’t abuse!), limiting the risk of your short credit history.
Open Student or Secured Credit Cards
Many banks and credit unions have a student credit card designed to help young adults get their first solo credit line. These credit cards will often have low limits and may even require them to be secured. A secured card means that the bank will have you deposit money into a special account connected to the credit card. Then, if you don’t pay the balance, they can use that account to pay off the card.
Try to Report Rent Payments
An emerging trend is using rent payments as part of your credit history. Although paying rent on time is not paying a credit account, you may be able to use it to show that you are responsible and make payments on time consistently. Check if your financial institution allows rent payments as part of your credit application to get a leg up!
Use Credit Responsibly
Finally, whenever you get your credit lines, be sure to use them responsibly. That means making all payments on time (at least the minimum due), not using too much of your credit card limit at once, and not taking out too many loans compared to your income.
At Kora, we’re here to help students be financially ready for college and beyond. Our platform has empowered over 250,000 students with financial literacy, smart savings, and opportunities to build a credit history. Stay up to date with your finances by following our blog!