How Can Students Build a Credit Score?

Building a good credit score right from a young age as a student can be a challenging task, but it’s pretty important. It comes into play when you apply for any sort of loan or credit card. Remember, the sooner you understand the importance of having a credit or CIBIL score, the better your future. 

However, without further ado, let’s take a look at how you can effectively build a credit or CIBIL score. 

Become an authorized user

Now, you must be wondering- what does an authorized user mean? Well, it’s quite simple. Being an authorized user means that you can use a different individual’s credit card, preferably a family member, in your name. 

So if you can convince your parents to add you as an authorized user on their credit card, you can build your credit. It will also minimize the risks involved with owning a credit card since the primary account holder will be able to keep track of your spending. 

However, if you are considering this option, ensure that the credit issuer reports authorized users to credit bureaus. If not, there won’t be any changes in your credit report. 

Get yourself a credit card of your own

If you have a job and can provide income proof, you can get a credit card of your own. Even if you don’t have one, you can opt for a student’s credit card. Some banks and credit card issuers offer credit cards for college students even without income proof. They are tailor-made and it is super-easy to qualify for one. 

Another thing you can consider is applying for a secured credit card. To get one, you’ll require a security deposit, which becomes your initial credit line in the future. It will help you learn to manage credit effectively, as you spend more than your secured card deposit. 

Avoid applying for multiple credit cards at once

After getting approved for your first credit card, you may be tempted to get another. But avoid doing that, since it’s not good for your credit history. 

Applying for multiple credit cards all at once can be a major red flag to the lender or the credit card issuer. Also, the more credit cards you add to your wallet, the more indebted you will be. And as a student paying back a huge debt, with limited or no income at all is next to impossible. 

Just not that, every time you apply for a credit card, your credit score lowers by a few points due to multiple hard inquiries. 

Never agree on co-signing for friends 

Did you know that you can have someone cosign on a credit card for you? Yes, you read that right. When you cosign with a friend, you are liable for paying off the debt on the account. Any default in repayment of the loan by them shall affect your credit score as well. For this reason, always try to avoid such a situation where you end up with a bad credit score and later your loan applications get canceled. 

Do not go overboard with your purchases

A credit card is a valuable financial tool, and you must use it responsibly. Rather than making big-ticket purchases, try to make small and regular purchases. That way, you can manage to keep your credit utilization as low as possible, thereby building your credit history. 

Adopt good credit habits

Once you open your first credit card, you must learn how to manage that credit wisely. Educate yourself on how credit scores work and why credit is crucial to making some smart choices. 

Pay off your balance on time each month. This shows lenders that you’re creditworthy and can manage your debts efficiently. Please note it’s one of the most important factors in determining your credit scores.

Keep track of your credit account

Regularly monitoring your credit card account is an ideal way to keep track of your purchases, bill due dates, and many more. You can set up notifications for each time your credit card is swiped. What’s more, this will help you keep track of your spending and your balance and you can even catch hold of fraudulent activities.

If you notice any suspicious activities, report the card issuer immediately. Not reporting such behavior promptly could lead to your account being maxed out which, in turn, will hurt your overall credit score and report. 

Check your credit report

When trying to develop a credit score, it’s crucial to monitor your progress. To get there, you can consider requesting a credit report. You’re entitled to avail a free credit report from one of the three reporting bureaus once a year.

Go through your credit report to track your credit score and activity on your account. You’ll also get a clear picture of how you’re dealing with the credit score factors and what can be done to improve your credit report. 

The Key Takeaway

If you start building your credit early and spend in a disciplined way, you can build a good credit or CIBIL score and become financially independent. It will also help you to acquire financial products and lower interest rates in the long run.