Five Steps to Help Your College Student Build a Credit History

by Michelle Smoley, former Assistant Vice President at Chase Student Loans Most adults understand the significance of establishing a solid credit history. A solid credit history allows for higher credit scores, which lead to higher approval rates from lenders and lower interest rates. College students, on the other hand, may not understand all the nuances to build a strong credit foundation. Here are five ways parents can help their college students build credit and set them up for financial success during college and beyond. 1. Educate your student on credit card basics. Educate your young adult on the differences between a credit card and a debit card. Review a statement with them and define basic financial terms such as balance, credit limit, and annual percentage. Discuss interest accrual repercussions of only making a minimum monthly payment on accounts. Help them understand that less is more when it comes to the number of revolving credit accounts they open and use. Have them make a charge once a month and then pay it off in full so that they can begin to create a solid credit history. 2.  Add them as an authorized user on your card or get a prepaid credit card. Many college students do not have an established credit history. One way to start is to add them to one of your credit cards as an authorized user. This can help them establish credit history and allow you to have more control over their spending. A prepaid card can be a good idea, as it allows them to make purchases while teaching them to live within their means. Also consider setting up a budget or a spending plan during college. 3.  Sign them up for a checking/debit account with a debit card. This can be an important step to teach students how to account for any income, successfully track spending habits, and identify competing financial priorities. If a young adult is responsible in keeping their records in order, they will be less likely to overdraft and make late payments on their accounts. These good habits will make them more desirable borrowers to financial institutions in the future. 4.  Teach them how to monitor their credit history. Show your student how to read a credit report and (if you are comfortable) show them your credit report. Explain that a credit report is a report card that lenders use to determine whether they will approve a loan and at what interest rate. Educate them that their credit report can and should be accessed annually at no cost. 5. Be a good financial role model. College students, even if they may not want to admit it, still learn from their parents’ behavior. Be sure to set a good example when it comes to using and paying your debt obligations. Pay your credit cards on time and in full, if possible. Live within your means and stay out of debt. Discuss savings and spending regularly so your kids understand how important good financial health is for their future.