

Ask HN: How can a college student build credit? - jliechti1

I am nearing graduation (in the US) and am looking for ways to build up my credit. What advice or tactics have HNers used?<p>One technique I have heard is to open a CD and take out a secured loan against it. You should only lose a fractional amount of money but it should boost your score.
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grmarcil
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.

------
ericcope
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/article/the-truth-about-your-credit-
score/lifeandmoney_creditcards/) [http://www.daveramsey.com/new/baby-
steps/](http://www.daveramsey.com/new/baby-steps/)

~~~
Loughla
So, having worked with Ramsey trainers and Ramsey disciples, and having worked
(in a very cursory manner) with the program myself, most of what he teaches
falls into three categories: 1. I lack self-control or 2. I lack basic math
skills.

I've also noticed that without Dave, those that strictly adhere to his program
have an incredibly difficult time making money and budget decisions on their
own.

A credit score can save you money in the long run. Very few people can pay
cash for a vehicle or a home. Better credit scores allow you to reduce these
payments and interest in small fashions.

Also, while a credit score is a measure of how well you handle debt, why not
get a good one? Charge gas, groceries and regular incidentals, pay it off
every month. Get a card with cash-back, and earn free money for spending you
would already be doing.

Credit isn't a devil out to destroy your life. Like anything else, it's a tool
to be used appropriately.

------
sharkweek
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.

~~~
falsestprophet
Having your name on bills does not affect your credit rating unless they are
delinquent, which will severely negatively affect your credit.

~~~
yebyen
Yes. I was once presented an option of paying either the Gas and Electric bill
for our half of the duplex house that I was living in, or paying the rent and
a share of the utilities (since nobody else would do it.) We renewed 18 month
leases two or three times, with either four out of six or four out of eight
tenants signing.

None of this ever appeared on any credit report. I don't think I actually
believed it would improve my credit score, but when the rental company came
and threatened to evict every tenant for the third time (presumably because it
was a dilapidated, drafty old flophouse and nobody wanted to sign a lease
renewal), everyone took the opportunity to move out and I was stuck with the
entire bill for half a house, for the extra two months I needed. (I managed to
split it with someone and get the hell out.)

In the cold winter months, gas heat cost more than the rent for the entire
half of a house. In the summer, I could get away with paying sometimes $50 or
even sometimes $0 for a month, due to past estimated bills that were over
actual usage. That was nice, but it really sucks getting stuck with _all the
bills_ when everybody splits because someone convinced you it would be a good
idea to put your name on as many things as possible.

------
Someone1234
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.

~~~
joelmbell
Totally agree. We all obsess about the FICO score way too much. If you plan on
living mostly debt free then usually you don't even have a need for a credit
score. There are ways to get mortgages if you want one even if you don't have
a credit history.

~~~
netskrill
> There are ways to get mortgages if you want one even if you don't have a
> credit history.

I've never heard of this. Even if its possible, You will most likely pay a
huge premium, if you want a lender to not use FICO scores to determine how
risky of a client they're about to lend money to.

~~~
joelmbell
Wow, I guess my last post was unpopular here. Look into "Manual Underwriting"
its definitely possible to get a mortgage without a FICO store.

My problem withe the FICO score is that it is not an indicator of financial
stability. Its entirely based off of debt. If someone wants to live debt free,
which most would argue is a great position to be in financially, you're
actually punished by FICO. The system is broken, and everyones obsession with
the FICO score just feeds that broken system.

If more people did things like Manual Underwriting, and tried to live debt
free I think it would drastically help the entire system.

------
matthewarkin
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.

~~~
clintonb
Wrong. Pay the bill after the statement is delivered and on/before the due
date. Paying before the statement arrives means you receive a statement with a
balance of $0. When reported to the credit bureaus, a $0 balance does nothing
to help your credit score.

~~~
Glyptodon
I don't think this works the same way for all credit cards. At least once I've
had a card show that it carried more than its limit in one month on my credit
report because I paid it off twice during that month. However, it hasn't
happened consistently.

~~~
clintonb
If you're approaching your limit, either request an increase or, as you have
done, pay it off. There very well could be inconsistencies around reporting. I
am still an advocate of paying the bill on the final due date because I see
credit cards as a 30 day, interest-free (assuming you pay it off), micro-loan.
It makes sense to let your cash accrue as much interest as possible (although
not a lot these days) in your bank account before paying off the card.

------
Glyptodon
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.

------
brudgers
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.

~~~
chimeracoder
> I can't think of a whole lot of things that are worth taking on significant
> debt for a new college graduate.

There are a _lot_ of things for which a credit history is helpful or downright
necessary. I would never recommend signing a mobile phone contract, but most
of them do credit checks when you do 2-year contracts. Utility companies also
do credit checks to determine whether you need to pay a deposit.

It depends on where you are and how competitive the rental market is, but in
NYC, it strongly helps to have a credit history in order to sign a lease.

Landlords (at least for the apartments you'd want to live in) generally are
reluctant to sign leases for new college graduates unless they have a
guarantor on the lease (many require that the guarantor make 80x the monthly
rent in income and live in the tri-state area).

Having a solid credit history not only makes them more likely to waive these
requirements, but also more willing to accept an offer for lower rent (because
they're more confident that you will pay rent on time and not cause damages,
the two things that they care about the most).

None of this is worth "taking on significant debt", but fortunately, you don't
have to take on any debt at all in order to build a credit history.

~~~
brudgers
We are in agreement that there are better and worse uses of credit. We are
probably neither of us about to graduate college, however. Hence my question
was why the OP wanted credit.

------
tdicola
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.

------
conception
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.

------
Smushman
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.

------
jordsmi
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.

------
redtexture
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.

------
clintonb
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](http://www.reddit.com/r/personalfinance).

~~~
caw
Loans are also bad because you start with a 100% full credit (e.g. $1000
outstanding on $1000 loan) and pay it down. Part of the credit rating is your
balance to credit ratio, so 5% looks much better than 95%. I've heard that the
ideal is <30%

------
netskrill
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.

~~~
beardicus
Anecdotally, this is untrue. I've had 800+ with just a credit card and an
overdraft line of credit.

------
alexmarcy
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.

------
acosmism
buy a car and pay off the loan

