Carrying a credit card debt while still in school can be risky, but college can also be a good time to begin building your credit, in preparation for living on your own after graduation. New federal laws have made it more difficult for college students to take out standard credit cards, but there are other ways for college students to begin building credit. Some of these are safer than traditional credit cards.
Credit Card
Having a credit card and making all of your payments on time is one of the easiest ways to build credit while in college, but there are some drawbacks. Many banks and credit card issuers offer credit cards to those in college, but students should beware that failure to make all of their payments on time could saddle them with poor credit ratings that can follow them for years. There are also new restrictions on credit cards for those under 21. The Credit Card Accountability, Responsibility and Disclosure Act of 2009, which came into effect in February 2010, prohibits credit card companies from giving anyone under 21 cards with limits of more than 20 percent of their earnings. If a student is not employed, they can now only get a credit card with a co-signer. The law also requires credit card companies to get a parent or guardian's permission before raising the students' credit limit.
Prepaid Card
A prepaid card works in a similar way to a debit card. You load up the card with cash and every time you swipe the card, money is deducted from your credit account. You can then add more money to the account. The difference between a prepaid credit card and a debit card is that some prepaid cards, such as the Account Now Visa card, report the activity on your card to the credit bureaus. This is a safe way to build credit while in college, but some prepaid card issuers charge high monthly and transaction fees so that you are, in effect, buying your credit rating.
Joint Card
Parents can help their children build credit by adding them to their own credit cards. The college student would be given a credit card in their own name, but all the charges would go on one account. Credit agencies will report activity on the joint card in both the students' name and the parents' name, so students can begin to build a credit history this way. Both users will be limited by the parent's credit limit. One drawback to joint cards is that the parent will be ultimately responsible for any debts run up by the student. Another drawback is that any late or missed payments made by parents will be reported on the students' credit history, so students' could end up with a poor credit rating.
Pay Bills
Some types of bills may be reported to credit bureaus and can help you build a credit rating even if you do not have a credit card. Even if you live on-campus and have few bills to pay, taking out a mobile phone contract and paying it off promptly each month may help you build credit. Taking out a student loan and making all of your payments on time can also help you to build credit while still in college. Because student loans come with low interest rates, they are a cheap form of debt. If you have taken out a student loan with a co-signer, some loan companies will allow you to release the co-signer after a period of time, allowing you to build credit of your own.
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