Sunday Reader Question: How College Students Can Build Credit

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TPG reader Dianna had a great question that sums up one of the challenges facing many young people looking for ways to build their credit without much income:

“I am currently a college student and a world traveler but I do not have all the things necessary to build a credit report. Most articles seem to be for people who have a stable job and consistent income. My income consists of earnings from summer jobs and babysitting during the school year. I was wondering if it is still possible for me to take advantage of using credit cards to earn free traveling points. I do have a credit score from currently holding a credit card and debit card, but have no installment payments or other kinds of credit-building material. I would appreciate any type of advice!”

College students can, and should, begin building their credit, but should take a slow and intelligent approach. Since most college students’ incomes are low, they need to be careful about running up balances, because it can be nearly impossible to dig yourself out of debt once you start accruing. A couple hundred bucks can easily become a couple thousand – and when you are only making a small amount of income, the interest on those balance can start to spiral out of control. There are countless stories of college students getting sucked into huge credit card bills, simply out of poor financial decisions and egregious interest rates (which most college student/intro credit cards have).

However, if you want to get in the miles and points game – you can absolutely leverage your credit as a college student and you can get cards without having a large annual income. Here are a couple tips:

1. Understand how credit works. Educate yourself on the different aspects of credit and how cards work. My simple tip: Don’t run a balance, because the amount you pay in interest will likely negate the value of the rewards you receive. Check out this post for a primer on how credit scores work.

2. If your parents have great credit, you can ask to be added as an additional cardholder on one of their accounts so your credit benefits from their long, positive histories. You don’t even need to use the card – in fact tell them that you don’t want the additional card – simply the positive credit “juice” of being associated with them. For example, if your parents have had an American Express card from before you were born, you can still get that positive history by being an additional cardholder! Check out this post for more info.

3. If you want to start from scratch, get a card that is geared toward new credit applicants or college students. They may not have the absolute best rewards, but if you handle your new found credit responsibly, your chances of getting approved for a premium rewards card will increase drastically. Remember, you should have a long-term strategy in the miles and points game.

For young people just starting out with credit and looking to get some benefits from their cards, I’d most recommend the Chase Freedom card because there’s no annual fee and the points you rack up can later be converted into premium Ultimate Rewards if you end up getting the Chase Sapphire Preferred down the road. That means the points (including the rotating 5x bonus category points) can later be transferred to United, British Airways, Korean, Southwest, Hyatt, Marriott, Priority Club, Ritz-Carlton and Amtrak points. Also, if your parents/friends have a Sapphire Preferred or Ink Bold, you can transfer your Freedom points to them and then they can transfer those points into your frequent flyer/hotel point account. Check out this post, written by a college student contributor, on the top college credit cards out there.

If your credit is already less-than-stellar, don’t get mired down. You can turn things around by getting a secured credit card, like the Capital One Secured Mastercard, and pay it off regularly to start re-building your score.

Chase Sapphire Preferred® Card

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  • Earn 50,000 bonus points when you spend $4,000 on purchases in the first 3 months from account opening. That's $625 in travel when you redeem through Chase Ultimate Rewards®
  • Named a 'Best Credit Card' for Travel Rewards by MONEY Magazine
  • 2X points on travel and dining at restaurants & 1 point per dollar spent on all other purchases
  • Sleek metal card design
  • Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
  • $0 foreign transaction fees, plus chip-enabled for enhanced security and wider acceptance when used at a chip card reader
  • 1:1 point transfer to leading frequent travel programs at full value — that means 1,000 Chase Ultimate Rewards points equal 1,000 partner miles/points
  • Travel confidently with premium Travel Protection Benefits, including Trip Cancellation/Trip Interruption Insurance, Auto Rental Collision Damage Waiver, Trip Delay Reimbursement and more
Intro APR Regular APR Annual Fee Balance Transfer Credit Rating
N/A 16.24%-23.24% Variable Introductory Annual Fee of $0 the first year, then $95 See Terms Excellent Credit