Yes! College students CAN build good credit histories and scores while in college!
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You might think that college students can’t get credit during the traditional four years of college after high school. And therefore, can’t build any credit record at all! Fortunately, there are strategic ways to work around the obstacles and graduate with a healthy credit history and a good credit score.
Parents can be a huge help to their students by teaching them about how credit works in the larger financial picture of a lifetime. Saving for the future and using money wisely in the present can improve one’s ability to borrow money for important purchases like a car, a house or an education. Lending companies need to know that a borrower will pay back the loans in a timely fashion.
After explaining how credit works, parents can help their college student by allowing him or her to ride on the parent’s credit coattails. This may involve co-signing for the student’s first car loan or by allowing the student to be an “authorized user” of a parent’s credit card. Both these credit building techniques involve a “trust and verify” relationship between the parent and the student. By this I mean that the parent must actively monitor the use of credit in each case.
Co-signing for a teenager’s car loan is the same as if the parent bought the car, because the parent stands to have his or her credit severely damaged if the student does not make timely payments. So “trust and verify” may mean parents must check each month that the payment has been made. Yes, a lot of trouble but a meaningful lesson in adult-style responsibility for a college student.
When a parent allows their college student to be an authorized user on a parent credit card there must be an agreement that each purchase must be cleared with the parent in advance. Alternately, there might be a budget for small purchases and only purchases outside of the budget would need to be cleared. Lots of ways to handle “trust and verify” for authorized users.
Another important method to build good credit history is the management of student loan interest that accrues during college. In the case of Federal Unsubsidized student loans, interest starts accruing from the day the loan is disbursed. Most undergrads who borrow for their college education will take out this kind of loan. They can choose to allow the interest to accrue all during college and through the six month grace period after graduation. The day that repayment must start, the accrued interest will be capitalized and added to the total loan amount. Most students allow this capitalization to take place, but smart parents will encourage their students to take this valuable opportunity to build a stellar credit history by paying the accruing interest off monthly as soon as the loan is disbursed. Making the interest payments in a timely fashion will not only look good to the credit bureaus, but will help the student make a seamless transition to actual loan repayment after graduation.
Parents can help their student access his or her credit report from the three big credit reporting agencies for free once a year from AnnualCreditReport.com. Actual credit scores are offered through the credit reporting companies for a small fee. A student can watch how his or her credit score grows each year when credit is properly managed. Ultimately, the parent should help their responsible student take advantage of current law that allows students to get their very own credit cards as soon as they turn 21 and are still in college. After the student has one or two credit cards and understands how responsible use of credit cards can actually build an even better credit record, parents can and should help their student freeze his or her credit at each of the reporting agencies. Freezing credit can greatly reduce damage from identity theft. Frozen credit can be thawed very quickly when it comes time to get a car loan or even to get a mortgage for a house. Credit checks by potential employers and landlords can also be done through credit thawing.
Here are some good links: