from Hacker News

Ask HN: How can a college student build credit?

by jliechti1 on 6/30/14, 3:40 PM with 48 comments

• by grmarcil on 6/30/14, 4:53 PM

  If you don't have a credit card in your name yet, get one. Since you are still a student, you're probably eligible for a student credit card, which most of the major card issuers offer and (I think) is generally easier to get with limited credit history. If you can't get that, talk to someone at your credit union or bank about opening a secured or co-signed (by a willing parent or guardian with good credit history) card to get you started. Make sure you get a card without an annual fee. Even if you eventually no longer use your "starter" credit card, keep the account open and stick it in a drawer. Accounts that have been open longest are good for your credit history (and this is why you should, at least, start with a no-fee card).

  As others have said, on-time payments and length of history are mostly key. As you build credit, get another card or two with higher credit limits. Call your cards' customer support lines every year or so and ask for a higher limit. Having a high limit (assuming you will not abuse it and rack up debt you can't pay) is good in itself, but mostly I'm suggesting this since the fraction of your credit that you actively use factors into your credit score, and a low fraction is better.

  As someone else mentioned, diverse sources of credit are good for your history too. Assuming you're not looking to buy a house soon, an auto loan is probably the only other type you'd get. Even if you can buy a car in cash, think about financing through your credit union. If you can get a loan with a lower APR than what you might conservatively get with that cash sitting in an investment account (4-5%), you'll at least break even financially and the credit history may be worth it when you're looking at mortgages.

• by ericcope on 6/30/14, 4:12 PM

  I strongly recommend Dave Ramsey's approach to credit scores. Credit scores are a measure of much much debt you can carry. If you carry a load of debt and pay it off, your score goes up so people can lend you more debt. That's the wrong question. The proper question is how can you remain out of debt and build your wealth? You don't need a credit score for that. As a 30something looking back at 10 years of debt, I totally regret it. Carrying debt is heavy on the soul and limits your options. Debt free living really is liberating.

  http://www.daveramsey.com/article/the-truth-about-your-credi... http://www.daveramsey.com/new/baby-steps/

• by sharkweek on 6/30/14, 3:59 PM

  First, get your name on as many bills as you can (utilities, cell phone, cable, etc).

  Get a credit card that you actively use but pay off every month (rolling over debt will not hurt your credit score as long as payments are on time, but as a personal bit of advice, pay it off every month as to avoid a ridiculously slippery slope).

  Once your score is somewhere in the 650+ range, and if you're considering a car, financing some of it isn't the worst way to build credit.

  Lastly... time. Unfortunately, it just takes a long time to build an excellent credit rating. One ding you'll likely see on every report you pull will be something saying you haven't had credit very long. After about the five year mark, this starts to disappear.

  Once again... caps for emphasis - PAY EVERYTHING ON TIME. A year of great payment history can be erased by a few late/missing payments. Keep good track of when bills are due and set up auto-payment if possible to ensure payment. But also watch those accounts like a hawk as even auto-pay is not a guarantee.

• by Someone1234 on 6/30/14, 3:58 PM

  Get a Credit Card, pay it off every month. Repeat.

  Although I never understood American's obsession with their credit scores. Unless you're taking out a mortgage tomorrow I don't really see why it matters. Credit scores are a natural part of normal consumer activity, no need to game them.

• by matthewarkin on 6/30/14, 4:13 PM

  Like everyone has said, get a credit card and pay it in full. Ideally pay it in full before your statement comes. Many starter credit cards will have a ridiculously low limit, my first discover card was $500. The issue with paying just on-time and not before the statement date is that discover reports your balance as of the day the statement prints so my reported available credit was always dismal.

  I also had some American Express charge cards, they don't have a huge affect on your credit but they may help you get an American Express credit card if you have a thin file.

  Once you got some credit, you can go for a car loan. I opted for a lease (since they tend to be cheaper then a new car). My current credit score tends to hover around a 720 FICO and I'm a rising junior, will probably go up a decent amount when I remember to pay my discover card in full before the statement date.

• by Glyptodon on 6/30/14, 4:41 PM

  I don't think it's that important to do anything crazy. If you've just had a credit card since you were 18 and paid it off every month you'll likely have a credit score that's more than good enough.

  Outside of a house the only reason to carry debt is to hedge your risks on large purchase items you already have the money for (IE you have the money to buy a car, but paying for it up all front may be enough of a risk to utilize credit if it would eat up most of your savings).

  The biggest factor that seems to have an effect on my credit score is account age, so I would advise against trying to do anything crazy and short term. Having a single credit card for 8 years will go farther than any crazy loan shenanigans will in 3 IMO.

  Paying all your utility bills and such on time goes without saying.

• by brudgers on 6/30/14, 4:47 PM

  What do you want to use this credit for?

  I can't think of a whole lot of things that are worth taking on significant debt for a new college graduate. Certainly not real-estate unless it's actually your business because it reduces flexibility to relocate for a job. Maybe reliable transportation, but that's a problem that can also be largely solved by relocation.

  Revolving type credit to purchase gas and groceries makes sense. It also makes sense to purchase supplies for one's business. Beyond that, it's just consumer debt.

  Putting money into a CD as collateral for a secured loan is probably worse than a slightly lower credit score due to the illiquidity of CD's.

• by tdicola on 6/30/14, 5:00 PM

  Get a credit card, use it a tiny bit each month, and ALWAYS pay it off each month. Just having a card and not using it won't help much, but using it too much (i.e. holding a balance) will also not help. Realize though that you will always be dinged for having a 'short' credit history in credit reports. It wasn't until I was almost in my 30's and had a card for over 10 years that I stopped getting dinged for 'short' credit history. Now that I've had a couple car loans, have a good history on a mortgage, and always pay off my revolving credit my credit score is pretty darn good. It will just take a long time to get there unfortunately.

• by conception on 6/30/14, 4:42 PM

  No one has yet mentioned a secured credit card. They are fantastic and you never have to worry about putting too much on the card since you can liquidate it at any time. Great way to start.

• by Smushman on 6/30/14, 5:11 PM

  I highly recommend skipping anything co-signed. It is a personal choice, but that puts you in a position of indebtedness just when you are starting out on your own. You don't want to owe for something before you even get started.

  I bought a CD for $1000, and secured a credit card with that through the same bank. It worked out better than a 'secured' credit card because I made some interest.

  CD Rates are different now, but it still works out better than secured.

  I had to do it secured because I had a $78 water bill that a roommate forgot to pay on my credit from 3 years earlier.

  Which reminds me of something else, try to get past paid off debts removed if that is hurting you. Sometimes they will do it, depending on your story.

• by jordsmi on 7/3/14, 6:04 AM

  Apply to a credit card with your bank. Without credit they are usually easy to get accepted to.

  Use your card for your normal purchases, don't just buy big things for the sake of purchasing things. Pay off your bill ON TIME every time.

  What I like to do is pay off most of the bill before it is due, and keep 5-10% of the bill for when they report it. This keeps your utilization at that low % which keeps your score up.

  Another thing to do if you can get multiple cards is set up an recurring purchase on one of them like netflix and make it so it auto pays the bill monthly. This way you are keeping it active while not really spending anything.

• by redtexture on 6/30/14, 4:01 PM

  Some banks have "secured" credit cards. They require a deposit, and issue a credit card for a credit value less than your bank deposit. This is a marketing technique for people who have bad credit, and need to re-establish credit. Use the card, pay it off immediately. Repeat.

  Then in six months to a year, apply for other credit cards, perhaps with same bank, perhaps with others.

• by clintonb on 6/30/14, 4:41 PM

  Do not take out a loan just to build credit. That's simply a great way to waste money. Just get a credit card and pay it off each month (after the statement but on/before the due date). Setup automatic payments to make this easy.

  Also, check out http://www.reddit.com/r/personalfinance.

• by netskrill on 6/30/14, 4:14 PM

  For 800+ FICO scores, you'll need 3 types of debt.

  1) Installment Debt - i.e. a car loan

  2) Mortgage Debt - mortgage loan

  3) Revolving debt - credit cards, with balance under 50% of CC limit

  and of course...no late payments on any of them.

• by alexmarcy on 6/30/14, 4:39 PM

  You can also ask around at credit unions to find one that reports to credit bureaus and take out a small loan and pay it back on time. It will cost you a bit in interest but is another avenue to building credit.

• by acosmism on 6/30/14, 5:10 PM

  buy a car and pay off the loan