By Emily Luong, student @ UCLA
Now that you know what a credit score is, how can you start building your credit? The easiest way to build credit is by getting your first credit card. However, in this economy, it can be tough to get approved for a credit card on your first try, especially if you don’t have a steady income.
But don’t worry! As a student, you have some easier options.
1. Get a cosigner.
When you apply for your first credit card, you’re more likely to get approved if you have a cosigner that applies with you. A cosigner will guarantee that they will be able to pay off your debt if you end up unable to pay it back. Because of this, they should have a good credit score and enough income. Cosigners are usually parents/guardians, older siblings, or other trusted family members.
Be aware that cosigning puts their credit on the line with yours, so if you’re lucky enough to have a cosigner, don’t take advantage of them. Cosigners do not get to use the card, so they basically have no personal benefit. You should still treat this credit card like it’s solely your responsibility to pay it back.
- More likely to get approved
- Can fall back on them in case of emergency
- Puts their credit on the line with yours
Credit cards from Bank of America, US Bank, and Wells Fargo are the only major ones that allow cosigners.
2. Become an authorized user on one of your parent/guardian’s credit cards.
This is less risky for your parent/guardian or other trusted family member, so they might be more likely to agree to letting you become an authorized user on one of their credit cards. This means that you can make purchases on the card, but aren’t obligated to pay it back (that’s on the card owner). However, the card owner can place a spending limit on the card to prevent reckless spending.
- No approval process
- Can start building credit at a younger age
- Spending limit can be placed
- Builds credit more slowly than having own card
- Can spend too much if no limit and put card owner at risk
3. Apply for a secured credit card.
Secured credit cards are easier to get approved for than traditional credit cards, because you have to make an initial (usually refundable) deposit that then becomes your credit limit.
For example, if you deposit $200 initially, you can charge up to $200. With responsible use, the company may increase your credit limit. The bank puts the deposit in a separate account and only touches it if your balance gets seriously out of control (in which case, the bank will take all or part of the deposit), or if you pay off your balance in full and decide to close your account.
This is a safe way to build credit without going out of control and spiraling into unhealthy credit card debt.
- Builds credit
- Harder to spend more than you have
- Less likely to fall into debt
- Can even earn credit card reward points!
- Higher interest rates and annual fees
- May require credit check to get approved
4. Apply for a credit card specifically geared toward students.
Student credit cards are also easier to get approved for than traditional credit cards, so long as you demonstrate that you can pay at least the minimum payment each month (with a part-time job, for example).
However, be wary of credit card companies that give you offers that seem too good to be true. Many companies take advantage of young adults’ inexperience and lack of knowledge by offering seemingly appealing perks, then charging the highest possible interest rates and other hidden fees.
- More likely to get approved with some proof of income
- Can get rewarded for maintaining good GPA via statement credits
- Can earn credit card reward points!
- High APRs
- Most require some established credit history
To sum it up, your first mission to building credit is to get yourself a credit card. Once you do that, your next mission is to use and manage the card responsibly to build up your credit score! Learn more about that here.