How To Build Credit As A College Student?

Going to college or university is a great way to invest in your future. But, not only is attending college expensive, but it’s also time-consuming. Between all the lectures, exams, and study sessions, there’s often little extra time to deal with other important things, such as the health of your finances and credit scores. 

The thing is, it’s important to start building good credit when you’re a young adult since your credit score is one of the key elements that can help get you approved for a mortgage, car loan, and other credit products. So, how does a college student build credit?

Key Points

• Several products and programs are available to help college students start building a positive credit history.
• Secured credit cards, credit-building programs, and rent reporting services are just some of the ways to build credit from scratch.
• Once you establish a credit profile, it’s important to practice good financial habits, like paying bills on time and not maxing out your credit card.

How To Start Building Credit As A College Student

Not only do college students lack time to establish credit, but they may also struggle to secure credit products that allow them to build credit. Luckily, there are some products and programs available that can help those with minimal credit history to start building a healthy credit score.

Get A Student-Friendly Credit Card

In Canada, there are plenty of providers that offer credit cards specially meant for students. Some of these cards have no annual fees and some may come with benefits like roadside assistance or travel perks. There are even credit cards that allow you to earn cashback rewards, which you can use to pay your monthly bills or redeem on select items.

Moreover, unlike regular credit cards, student-friendly credit cards typically have low requirements and low credit limits. 

How Will A Student-Friendly Credit Card Help You Build Credit? 

A credit card designed for students can help you build good credit in the following ways:

• Positive Payment History – Making on-time payments is one of the most important factors used to calculate credit scores. Using a credit card and paying it off on time every month can help you build a healthy payment history and credit score.
• Maintain A Healthy Debt-To-Credit Ratio – When using a credit card to build credit, it’s important to not max out your card every month. It’s recommended to keep your debt-to-credit ratio to 30% or less. If you have trouble accomplishing this, consider paying off your credit card balance twice a month.
• Build Credit History – It’s important to start building your credit history early. This way, once you’re in the market to buy a car or house, you’ll have a long and healthy credit history for lenders to check. So, the sooner you take out a secured credit card, the more time you’ll have to build credit history.

Best Student-Friendly Credit Cards

Several secured credit cards are available for college students to help build credit:

Sign Up For The KOHO Credit Building Program

If you’re looking for an easy way to build your credit, then you should consider KOHO’s Credit Building program.

KOHO Credit Building

When you subscribe to KOHO’s credit building service, you’ll have access to a line of credit. Your monthly subscription fees — which range from $5 to $10 — will be used as payments toward the line of credit and are reported to a major credit bureau. This will help you build a positive payment history, which can positively affect your credit scores. 

To use KOHO’s Credit Building Program, you need to sign up for a KOHO account, which comes with a few perks, such as: 

• Cash Back – Earn cash back on groceries, transportation, and food.
• Savings Interest – Earn interest on your entire KOHO account balance.
• Free Credit Score — Check your credit score for free as a KOHO account holder.

Have Your Rent Payments Reported To The Credit Bureaus

Are you living in an apartment while attending college? If so, you may be able to use your rent payments to build a positive credit history. 

Rent payments are not typically reported to the credit bureaus in Canada. But with the help of certain third-party services, you can have these payments reported, which may help you build good credit. Plus, the service can help you build a positive rent history, which can strengthen your lease application and help you stand out to prospective landlords. 

Use A Secured Credit Card

If you’re a young student with bad credit, you may not be able to qualify for a traditional or student credit card. Luckily, secured credit cards are available and come with many of the same standard perks as conventional cards such as cash back, fraud protection, and more. Moreover, secured cards are much easier to get approved for and often applicants don’t need a credit history. 

Secured cards are often used specifically to build credit because lenders will report payments to at least one of Canada’s credit bureaus. To use a secured credit card, you’ll need to pay a security deposit, which serves as collateral. The security deposit may be equal to your desired credit limit, but not always. 

Pay Down Your Student Debt

If you have an active student loan or student line of credit, another way to gradually build or improve your credit is to pay off your debts. For example:

• Private student loans should always be paid on time, as lenders usually report late payments to the credit bureaus after 30 days. Don’t forget, timely loan payments can help your credit.
• Student lines of credit allow you to make minimum or partial payments to avoid penalties. If you can’t make larger payments, at least always make the minimum payment.
• If you have the Canada Student Loan (Federal loan), you’ll have a grace period of 6-months from when you stop studying or switch to part-time studies. Similarly, if you’re having trouble repaying your student loan, you can apply for assistance through the Repayment Assistance Plan (RAP).

Keep Up Good Credit Habits

Bad credit is often the result of poor credit habits, like not paying bills on time or using up too much of your available credit. Then again, it may be due to a mistake on your credit report or lack of credit history. If you’re struggling to create good credit habits, here are a few tips to get you started. 

Pay Bills Responsibly 

As mentioned, a healthy payment history is one of the most common and significant factors that affect your credit. Keeping up with payments can help build good credit, whether you’re a student or not. 

Maintain A Low Credit Utilization Ratio 

A credit utilization ratio of 30% or lower is often preferred by lenders. A low ratio can contribute to a healthier credit profile.

Avoid Applying For New Credit Too Often

When you apply for credit cards, loans, and other credit products, your lender or creditor may pull your credit report to assess your creditworthiness. This is known as a hard inquiry. While one hard inquiry can negatively affect your credit, it’s typically temporary. On the other hand, multiple hard inquiries within a short time frame can have a more significant impact on your credit scores.

Check Your Credit Report

In Canada, consumers can check their credit reports and scores through numerous sources, such as credit bureaus, banks, or third-party credit score providers like CompareHub. It’s a good idea to check your report frequently for errors, signs of fraud, or ways you could be fixing your credit. If you notice any mistakes, have them fixed right away.

What Are Credit Scores?

Your credit score is a three-digit number assigned to you once you start using credit products. In Canada, credit scores range from 300 to 900 and indicate the likelihood you’ll pay your bills on time. If you handle credit products responsibly and pay your debts on time, you should be able to build the healthy credit profile you want.

Once you begin building a credit history, various parties can see your credit scores for different reasons. For instance, banks, credit unions and private lenders will sometimes inspect your credit scores to determine whether to extend you a loan. 

The closer your score is to 900, the stronger your credit is. In this case, it should be easier for you to get approved for larger loan amounts, lower interest rates, and more favourable payment plans. However, not handling your credit products responsibly can eventually result in a bad credit score, which is anything under 600. 

What Factors Affect Your Credit Scores?

While your credit scores can be calculated in many different ways, five common elements influence your credit score:

• Payment History (~35%) – Your history of bill payments has the greatest impact on your credit score. That includes credit card bills, mortgage payments, and anything else that shows up on your credit report. Any late, incomplete, or missed payments may decrease your scores, while timely payments can do the opposite.
• Debt-To-Credit Ratio (~30%) – The amount of revolving debt you’re currently carrying compared to how much available credit you have can affect your scores. Higher ratios may result in a negative impact on your credit scores.
• Credit Age/Length (~15%) – It’s also healthy for your credit scores to keep credit accounts open for as long as possible, rather than cancelling and reopening accounts. Older credit accounts can help increase your credit age and show that you have experience with credit. This may lead to better credit, particularly if these accounts have been used responsibly.
• Credit Inquiries (~10%) – Hard credit inquiries can hurt your credit score. As such, it’s recommended not to apply for too many loans in a short period to protect your credit score.
• Public Records (~10%) – Bankruptcies, consumer proposals, lawsuits, liens, and accounts in collections are other factors that are considered when calculating your credit scores.

Additional Reading

How To Apply For The Ontario Student Assistance Program (OSAP)

What Happens To My Student Bank Account After I Leave College Or University?

Student Loan Repayment Assistance Plan (RAP)

Final Thoughts

Given the importance of good credit, it’s ideal to start building healthy credit as soon as possible. Even while you’re still in school, take advantage of available credit building products and programs early. This will give you time to steadily build good credit. Eventually, you may have a variety of credit products available to you, as long as you manage your finances wisely.

How Does A College Student Build Credit FAQs