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College Students and Recent Grads

7 Ways for College Students to Build Credit

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Ways for students to build credit in college
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College is a great (read: strategic) time to work on building a credit score from scratch. If you work on building credit while in school, you could graduate with a healthy credit score in the high 600s to mid-700s.

Coupled with a solid starting salary, graduating with a good or excellent credit score puts you in a great position to rent your first house or apartment and, eventually, make larger purchases like a new car or a first home. On top of that, you’ll qualify for the best terms when it comes to borrowing personal loans or opening credit cards.

How to build a positive credit history

Here are a few inexpensive things you can do to bulk up your credit report and build your credit score before graduating from college

#1: Learn how to use a credit card — the right way

You can start working on your credit score by opening a student credit card with a bank or credit union. Having a credit card can be risky — there are plenty of stories of students overspending or seeing their credit limit as “free money” — but opening a student card also gives you an opportunity to learn good credit-building habits. Here’s a simple strategy for building credit with a student credit card:

  1. Charge only a recurring bill like a phone bill or monthly streaming subscription to the card.
  2. Set up automatic payments to pay off the credit card bill on time and in full each month.
  3. Rinse and repeat for four years.

When selecting a credit card, you’d ideally choose a credit card that doesn’t charge an annual fee. You shouldn’t use the card for anything other than the recurring bill — and, if absolutely necessary, the occasional emergency. The recurring bill should ideally be less than 30 percent of a your total available credit. (Using as little as possible of your available credit helps you get a good credit score.)

Eventually, your credit score should reflect a history of consistent, on-time payments and will likely be in the good or excellent range. These are some of the best student credit card offers available now.

Con: High interest rates

While credit cards generally carry high interest rates across the board, student credit cards tend to have some of the highest APRs. The rate is high because students don’t usually have much credit history, so lenders see them as risky borrowers and charge a higher interest rate to compensate for the risk.

Pro: Build credit without debt

Using the strategy described above — making a small purchase and paying it off each month — you can establish a healthy credit history without paying a cent of interest. Assuming you pay the bill on time and you’re using the card to buy something you’d purchase anyway, there’s no cost to this approach of building credit.

Con: Low limits

Limits on student credit cards are generally pretty low, as banks want to minimize risk of lending to an inexperienced borrower. A low limit makes it pretty easy to use more than the suggested 30 percent of one’s total credit limit. For example, 30 percent of a $500 limit is $150 — basically the cost of a textbook.

Pro: Access to an unsecured line of credit

Having a credit card gives you a line of credit to borrow from when you need to. This can be helpful if you can’t immediately cover all of your personal costs like books, food or an emergency. The student credit card is also unsecured, meaning the student won’t have to make an initial deposit to open the line of credit.

Con: Easy to make credit mistakes early on

A credit card comes with a lot of responsibility. Having a credit card can make it really tempting to spend more than you can afford (which results in expensive debt) or use a lot of your credit limit (which can hurt your credit score). Be prepared to exercise a lot of self-control if you get a student credit card, because it can take years to undo the damage caused by irresponsible credit card use.

#2: Become an authorized user

If your parent has good credit history, ask them about becoming an authorized user on their credit card. When you become an authorized user, your parent’s behavior with the credit card will be reported like it was your own.

Pro: A passive way to build credit history

If you use this tactic, you can build credit history while never having to actually apply for credit yourself.

Con: It’s not guaranteed to help

Not all credit card issuers report authorized user accounts to the credit bureaus, according to Experian. On top of that, not all credit scores look at authorized users the same. There are dozens of credit scores, each with their own algorithms, and some may not give an authorized user much weight in determining a score, according to Experian.

Con: Could easily backfire

While authorized users are not liable for debts on the account, missed payments or high credit card balances on the account could hurt you. If that happens, you can either file a dispute to have the negative information removed or contact the card issuer and ask to be removed as an authorized user on the card.

#3: Get a co-signer

You can thank the 2009 Credit CARD Act for making it more difficult to get a credit card before you’re 21. The CARD Act stopped companies from marketing credit cards to students on college campuses and made it so people who are younger than 21 must either have a co-signer, such as a parent or a guardian, or have an independent source of income to qualify for a credit card.

Pro: Allows a student who can’t qualify on their own to open a credit card

Lenders generally consider it risky to hand a line of credit to a college student with little or no credit history. By requiring a co-signer, lenders transfer part of this risk to someone else, giving you an opportunity to build your credit you may not have had on your own.

Con: Puts a co-signer at risk

If you go with a co-signer, you need to be very careful to only charge what you can afford to pay off in full each month. Both you and your co-signer’s credit scores will take a hit from any negative behavior like missed payments or high credit card balances. Asking someone to co-sign a credit application is no small request and can affect your relationship with that person. Be sure to set ground rules for the arrangement before agreeing to it.

#4: Get a secured credit card

If you’re unable to get approved for an unsecured credit card, you can try opening a secured credit card instead. A secured card can help prove your responsibility to lenders without a lender taking on much risk. You’ll have to put down an initial deposit in exchange for access to a line of credit on the card. Typically, the line of credit will equal the amount of the deposit. You can check out our roundup of the top secured credit cards for people looking to improve their credit scores.

Pro: A better shot at approval

Because the required deposit lowers a lender’s risk, you have a better shot at getting approved for a secured credit card over an unsecured student credit card.

Con: A required deposit

You will likely have to come up with $100 or more to put down as a deposit before a credit card issuer will approve you for the account. If you miss a payment, the lender can take your deposit. And because the deposit will likely serve as your credit limit, you won’t have much room for spending if you want to reap the credit-score benefits of using little of your available credit.

#5: Get a credit-builder loan

You can get credit-builder loan through banks and credit unions. When approved for a credit-builder loan, your loan is deposited into a savings account, but you can’t access the money until you’ve paid back the loan.

A credit-builder loan is good for students who want to build credit but don’t want to risk overspending on a credit card or using a credit card irresponsibly. Credit-builder loans are secured loans, so they often have lower interest rates than credit cards, too. The loan also gives you the advantage of making equal, periodic payments so you aren’t caught off guard when a bill arrives.

You can find a credit-builder loan account through a variety of lenders. For example, online-only lender Self Lender specializes in credit-builder loans, but they’re common products at credit unions as well. Research a variety of options and compare borrower requirements, as they vary from lender to lender.

Pro: No deposit necessary

You won’t have to come up with any money upfront to open this secured line of credit. You will, however, need to make periodic, on-time payments to effectively build your credit history.

Con: No access to the line of credit

You won’t have access to the funds from a credit-builder loan right away. This could become an issue if you suddenly need money. If you want to access the money, you must first finish paying off the loan to the lender.

Con: Fees

Some credit-builder loans come with fees, making this a potentially costly option for building credit.

#6: Stay on top of student loan payments

If you have student loans, repaying them will be a crucial part of your credit history. After graduation, you can easily hurt your credit score by missing a student loan payment. Many student loans have a grace period of six months after graduation, meaning you won’t have to make payments during that time. If you’re not paying attention to when that grace period ends, you could easily miss your first payment and hurt your credit score.

A missed payment can cause your credit score to drop significantly and stay on your credit report for years, which can be seriously harmful to someone just starting to build a credit history.

Credit-building tip: You don’t have to wait until your loans come due to start making payments. If you can afford to start paying your student loans while you’re in school, you can save money in the long run, and you don’t have to wait until you graduate to establish a positive payment history on your credit report. This could give you a head start on getting out of debt and building your credit before entering “the real world.”

Keep an eye on your email inbox and physical mail for information from your loan servicer (the company to which you make loan payments) regarding your first student loan bill and be sure to make your payment. Continuing to make on-time payments on student loans will help you build a good credit history.

If you can’t afford the student loan payments and have federal loans, you can learn all about how to enroll in an income-driven repayment plan here. Enrolling in an income-driven plan can reduce or eliminate your required student loan payment, making it easier to stay on top of payments and avoid credit damage.

#7: Build credit with a rent payment

If you rent an off-campus apartment, you can build your credit history by simply paying rent on time, if it’s reported to the major credit bureaus. Students should ask their landlord or property manager if their rent payments are reported to Equifax, Experian or TransUnion.

If the rent-taker doesn’t report the payments, you can ask them to sign up for a rent payment service like PayLease or RentTrack that will let you pay rent online and give the landlord the option to report the payments to the bureaus. The rent payment information will be included on a standard credit report and can help students build good credit history without ever opening a line of credit.

Pro: Build credit with money already intended to spend

You’re already spending money paying rent each month, so why not make that payment serve both your housing and credit-building needs?

Con: Some landlords may not agree to report payments

Many landlords check credit scores when a tenant applies, but not many report regular, on-time payments to the big three credit bureaus. Getting your landlord to switch to (and pay for) a payment service they aren’t familiar with might be a long shot, but it’s worth asking.

Con: Not all credit scores factor in rent payments

This isn’t a sure-fire way to build credit, as not all credit scoring models include rent-payment history. The same goes for utility payments: They could help you build credit, but they may not. If you’re looking for a certain way to work on your credit, the other strategies in this article make more sense.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
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Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]

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College Students and Recent Grads

Facing Private Student Loan Default? Here Are Your Options

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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While federal student loans come with a number of flexible repayment plans, private loans typically aren’t so forgiving. So if you’re struggling to pay your bills, it can be tougher to avoid private student loan default than it would be with federal debt.

To make a bad situation worse, defaulting on private student loans (or any loans, for that matter) comes with some nasty consequences. Your credit score could be seriously damaged, for instance, and you might end up in court.

But while the consequences of defaulted private student loans are serious, they’re also solvable. Here’s what you need to know about private student loan default and how to prevent it if it hasn’t yet occurred.

What causes private student loan default?

If you’ve got student debt, you know that not paying them could lead to default. But missed payments aren’t the only action that results in defaulted private student loans. Here are three reasons your school debt could go into default status.

1. You missed payments

As with federal student loans, private loans go into default if you don’t pay your bills. But while the federal government allows for a 270-day delinquency period before your unpaid loans are placed default status, private lenders don’t give this much wiggle room.

Some allow for three to four months of delinquency before reporting your loan as defaulted; others will label your loan as defaulted after a single missed payment.

2. Your cosigner declares bankruptcy or dies

If you borrowed private student loans for your undergraduate education, chances are you applied with a cosigner, such as a parent. Because your cosigner shares this debt, their actions can affect its status.

Even if you’re making on-time payments, your loan could potentially be considered in default if your cosigner declares bankruptcy, and in some cases it automatically goes into default if the cosigner passes away.

3. You declare bankruptcy or default on other debts

Finally, your private student loan could enter default if you file for bankruptcy or default on other debts. Even if you’re paying your student loan on time, these other financial events could trigger default. If you’re in this situation, speak with your lender or examine your student loan contract to see what could happen.

7 consequences of defaulting on private student loans

If any of these events trigger private student loan default, here’s what could happen next.

1. Your lender demands full and immediate repayment

Chances are, you defaulted on your private student loans because you couldn’t afford monthly payments. But, ironically, defaulting means your lender will likely demand full and immediate repayment of the entire loan.

Because you missed payments, your original repayment plan becomes null and void. Since this agreement is canceled, the lender may ask you to repay the debt in full.

Of course, you probably aren’t able to pay back the entire loan all at once, so you’ll need to find other ways to fix this situation.

2. Your credit score will plummet

Your lender will report your defaulted private student loan to the credit bureaus. Since a big part of your credit score is based on on-time repayment of debt, your score will likely take a serious hit.

This red mark will show up on your credit history, making it difficult to take out another loan or get other forms of credit in the future. In most cases, negative marks can stay on your credit for up to seven years, unless you’re able to file a successful dispute and get them removed.

3. Your loan could get sent to collections

After you default, your lender might send your loan to a collections agency. Once this happens, expect to get lots of calls and mail from collections agents requesting repayment.

That said, it’s illegal for collections agents to harass you — for example, they’re not supposed to contact you before 8 a.m., after 9 p.m., or at work if you’ve asked them not to. Protect yourself by understanding your rights as a borrower.

4. You might owe additional collections fees

If your loan gets sent to collections, you might get charged extra fees. Whether set by your initial contract or state law, these fees could make your debt even more expensive, sometimes even adding 25% to 40% to your balance.

5. You could get sued

If you don’t respond to attempts to collect the debt, your debt collector could bring you (and your cosigner) to court. This is more common if the lender thinks you have the means to pay back your loan but are choosing not to (and less common if you truly are in dire financial straits).

Once in court, the lender will have to verify that your debt is legitimate with the right documentation. If the debt collector wins, it could take more extreme action to collect your money.

6. You might face wage garnishment or property liens

Let’s say you go to court and lose. If it gets the appropriate court order, the debt collector could actually garnish your wages or seize your assets. This could mean it puts a lien against any property you own or a financial levy on your bank accounts.

7. You might run out the clock on your debt’s statute of limitations

As you can see, the consequences of defaulting on private student loans can get extremely serious, even leading to wage garnishment or withdrawals from your bank account. But don’t forget that you have rights as a borrower, one of which involves a statute of limitations on debt.

These statutes of limitations vary by state and typically range from three to 10 years for private student loans. Once the time limit is up, the lender can’t take any legal recourse against you.

Of course, waiting out the clock on your student debt is seriously risky for all the reasons mentioned above. Plus, you must be careful not to reset the clock on the statute of limitations. If you resume repayment at any time, for instance, the clock could start again from zero.

How to prevent defaulting on student loans

If you’re worried about falling behind on private student loan payments, here are four actions that could help your situation.

1. Try to postpone payments through temporary forbearance

Let’s say you can’t pay back your private student loan because you lost your job or are going back to school. While private lenders don’t have the same flexible repayment plans as the federal government, some will let you temporarily postpone payments through forbearance.

Although interest will continue to accrue, pausing payments could give you the relief you need until you get back on your feet. You’ll be able to stop making payments for a while without worrying about going into default. If you’re struggling, talk to your lender about temporary forbearance or deferment.

2. Speak with your lender about reduced monthly payments

Even if your lender won’t let you pause payments completely, they might be willing to reduce your monthly payments for a period of time. After all, they’d rather have you pay something on your debt than stop making payments completely.

Whether it’s interest-only payments or another adjusted amount, ask about your options. Even if the lender doesn’t list alternative payment plans on its website, it’s always worth calling to see if it can be accommodating.

3. Refinance your student loans for new terms

One surefire way to restructure your debt with new terms and monthly payments is through student loan refinancing. When you refinance, you can choose a new repayment plan, often between five and 20 years.

If your bills are burdensome, a longer plan could be the solution you need. Even though you’ll probably pay more interest over the life of your loan, the lower monthly payments could make your debt easier to manage.

That said, not everyone will qualify for student loan refinancing. You’ll need to pass a credit and income check to qualify for refinancing, or apply with a cosigner who can.

4. Explore student loan repayment assistance programs

While private student loans aren’t eligible for federal forgiveness programs, like Public Service Loan Forgiveness, they might qualify for private- or state-run loan repayment assistance programs (LRAPs). These programs typically offer thousands of dollars in loan assistance in exchange for working or living in a certain area.

Some employers also offer a student loan matching benefit, which could help you get rid of your debt faster. If you’re job searching, consider applying to a company that could help you pay off your student loans.

Already defaulted? 3 steps that could help

The steps above can help you avoid private student loan default, but here’s what you can do if it’s already happened.

1. Dispute the debt

Maybe debt collectors are ringing your phone off the hook, but something feels wrong. If you’re not convinced you owe this defaulted private student loan, it could be worth disputing the debt.

As long as you make your dispute within 30 days of hearing from a debt collector, that collector will be legally obligated to provide full verification of the loan’s originations.

If the collector can’t provide this documentation — or if you discover a mismatch with your own records — you could be able to prove the debt is invalid or you don’t owe as much as the collector claims.

2. Pay your loan back in full

Although full and immediate repayment is probably unrealistic for most borrowers, it is worth mentioning as a way to get out of default. Paying off your entire balance at once will stop the default. If you’ve saved up a large sum or get an unexpected windfall, consider throwing it at your debt to get out of default once and for all.

3. Speak with a student loan lawyer

Finally, consulting a student loan lawyer could be a helpful step. The lawyer could help you understand your options, and explain how your particular state treats defaulted private student loans. It could especially be smart to consult a lawyer if the debt collector has summoned you to court.

And if you don’t have the funds to pay for legal aid, you may be able to find low-cost or free assistance via the Amercian Bar Association’s pro-bono listings or the Legal Services Corporation.

Try your best to avoid defaulting on private student loans

In recent years, some borrowers have intentionally defaulted on their private student loans in protest over the student loan crisis burdening millions of Americans. But whatever you think of the financial situation we’re in, defaulting on your student loans could cause more harm than good.

As you can see, defaulting can damage your credit for years, and invite frequent calls and letters from debt collectors. You could even be brought to court, where a lender could get the right to withdraw money straight from your bank account.

Outside of these financial and legal repercussions, defaulting on student loans is sure to cause a ton of stress and anxiety. So if you’re struggling to pay your bills, try your best to speak with your lender before default occurs.

By keeping open communication, hopefully you and your lender can agree to a repayment plan that keeps your loan in good status without it being too much of a burden on your bank account.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
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Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads

Private Student Loan Requirements and How to Fulfill Them

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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As long as you don’t go overboard, private student loans can be a useful tool for covering college costs. But don’t forget that private lenders set their own requirements for student loans, which differ from those set by the federal government.

If you’re looking to borrow, you’ll need to know how to qualify for private student loans, as well as how to find the best rates. Here are the five main private student loan requirements, followed by some tips on finding the most affordable student loan.

1. You’re a student (or parent) who meets citizenship and age requirements

As the name implies, private student loans are reserved for students — this means you’ve enrolled in college or graduate school for the coming semester. Some lenders also require that you’re attending at least half-time.

However, there are also lenders that offer loans to parents paying for their child’s education. Sallie Mae’s Parent Loan, for example, lets parents cover the full school-certified cost of attendance at their child’s college, graduate school or other degree-granting program.

Either way, the borrower typically must be a U.S. citizen or legal resident who’s 18 years of age or older.

2. You’re enrolled in an eligible school

Not only must you meet certain requirements for private student loans, but your school has to be eligible as well. Each private lender will have its own student loan requirements, lending to some schools but not others.

Check with the individual lender to ensure your school qualifies. Note that some lenders only operate in certain states, so your location could also play a factor here.

3. You need funding for qualifying educational expenses

You might love a few thousand dollars in your pocket for spring break, but private student loans are supposed to be used only for qualifying educational expenses, such as tuition, fees, books and living costs.

After you apply for a private student loan, the lender will likely talk to your school’s financial aid office to verify your request. The school will then check to make sure the amount matches its estimated cost of attendance. It will also share any other financial aid you’ve received, such as federal student loans, scholarships or grants.

This certification process can actually be helpful, as it could prevent you from borrowing more than you need. Since you’ll have to pay back your loan with interest, it’s important not to borrow too much.

After the school confirms your loan amount, most lenders will send the funds directly to your financial aid office. If there’s money left over, it will be returned to you to use on books, housing, meal plans, transportation, medication, dependent care or other necessary expenses.

Although less common, some lenders will send the funds directly to you. In this case, it’s your job to pass on the money to your financial aid office to apply toward your tuition bill.

Either way, remember that you don’t have to keep excess loan money if you discover you borrowed too much. You’re likely better off returning that extra money to your lender to avoid paying interest on it.

Whatever expenses you can cover with savings, a part-time job or scholarships could help you avoid taking on a burdensome amount of student debt.

4. You have strong credit and income…

So far, the requirements for private student loans probably don’t seem that different from the requirements for federal ones. You have to be a student at an eligible school, and you must use your money on qualifying educational expenses.

But here’s where private lenders differ from most loans offered by the federal government: they require a credit check to take out a loan. In general, private lenders only approve creditworthy applicants who have a stable income.

This credit check reassures the lender that you have a history of paying back debt on time, as well as the means to do so. So when you submit a full application, you might be required to provide documentation, like pay stubs, monthly rent bills and bank account balances, as well as submitting to the credit check.

Of course, many undergraduate students don’t have strong credit yet, so they can’t qualify on their own. That’s where a cosigner comes in.

5. … Or you can apply with a cosigner

If you can’t qualify for a private student loan on your own, you can improve your chances by applying with a cosigner. You’ll need a cosigner with decent credit and a strong income to qualify for a private student loan.

According to data firm MeasureOne, more than 92% of private undergraduate loans were issued with a cosigner in the 2018-2019 school year. These student borrowers had a parent or another adult sharing their loan application and providing the required documentation — pay slips, bank statements, etc. — in their stead.

Before enlisting a cosigner to meet private student loan requirements, make sure you understand the significance of sharing debt. Your cosigner will be just as responsible for paying back the debt as you are, and their credit could be harmed in the event you can’t pay.

Make sure you and your cosigner have a discussion about expectations before taking on debt together. You should also look into options such as cosigner release or student loan refinancing if you ever want to take your cosigner’s name off the loan and assume full responsibility for the debt yourself.

Compare offers to find the best private student loan

Once you’ve prepared for private student loan requirements, your next step is shopping around for a loan. Fortunately, many lenders make it easy to compare offers online in just a few minutes.

With a pre-qualification check, you can enter a few basic pieces of information and see your loan offers with no impact on your credit score. If you see one you like, you can then go on to submit a full application.

This step is really useful, as it enables you to find a loan with the best rates. Let’s say, for example, you want to borrow $15,000 on a 10-year repayment plan. One lender offers a rate of 8.5%, which would cost you $7,317 in interest over 10 years. But after hunting around some more, you find a rate of 6.5%, which would only cost you $5,439 in interest over that same period — nearly $1900 in savings.

Taking the time to find the best rate could save you hundreds or even thousands of dollars over the life of your loan. So, along with learning about how to qualify for private student loans, make sure to compare offers from multiple lenders.

That way, you can earn your degree while feeling confident you’ve found the best deal for a private student loan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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