How to Build Credit: A Guide for College Students and Recent Graduates

Whether you’re a college student or a recent graduate, managing your finances has a lot of components. Here are just some of the financial next steps you might be thinking about:

• Renting or buying a house.
• Managing credit cards.
• Starting to pay off student or auto loans. 
• Saving for a rainy day.
• Investing for long-term goals, like retirement.

If that seems like a lot – and it is! – consider narrowing your focus. Building credit, managing your credit cards wisely, and investing in your future self are three good places to start.

Credit usage is basic to financial health. Just as you’re trying to eat right to keep your body healthy and in good physical shape, using your credit and your credit cards wisely helps to put you in good financial shape. That "shape" is reflected by your credit history, which shows your pattern of borrowing money and paying it back, and of paying your bills in a timely way. If you’re a college student, you may not have a very long credit history, but you want to start building credit as soon as you can. A good credit history can help you borrow money at better – that is,  lower – rates.¹ 

Your credit history is specifically measured by your credit score. Think of a high credit score like a good grade – one with lasting benefits. With a strong credit score, you may be more likely to save money on auto loans, a mortgage, even car or homeowner’s insurance. In addition, if you’re a college student or a recent graduate, potential landlords may want to see your credit score before agreeing to rent you an apartment.

Credit cards are payment systems that create a debt that you are then obligated to pay later. In the United States, credit card usage is widespread, which may surprise you if you’re coming from a low-usage credit card culture. India, for example, has only around 52 million credit card users² in a country of 1.3 billion people – only 4% of the population.³ However, card usage is so common in the U.S. that 70% of Americans have a credit card account in their name.⁴ As you build your finances during and after college, you’ll find that responsible use of credit cards may help you build up your credit history.

How to get a credit card

But how do you get a credit card as a college student, or if you’re otherwise new to credit? One way is by getting a secured card, where you deposit funds into a bank account as a guarantee against your spending on the card. You can also get a retail card, which allows you to spend, for example, at a specific department store or airline. Or you can become an authorized user, also known as an additional card member, on an established credit card holder’s account, thus drawing on their established credit history to help you build your own. 

If you’re new to the U.S., use Nova Credit to access your established credit history from select countries when applying for a new credit card in the States. 

Focus on utilization and quality

Once you’ve started building credit, there are two important things to remember. First, the way credit scores are calculated, the utilization rate – the percentage of your maximum allowable spending that you spend at any one time – of your credit cards impacts your credit score. So when you think about responsible credit card use, consider not running up your spending on the card all the way to your borrowing limit. 

Second, focus on quality, not quantity, when you’re obtaining credit cards. Opening too many new accounts in a short span of time may lower your average account age, and thus could adversely affect your credit score.⁵

Protect your card number

If you’re used to using debit cards, payment systems that take money out of your bank account whenever there’s a transaction, realize that credit cards offer more safeguards against fraud than debit cards do.⁶ But you’ll still want to keep careful track of the credit card itself, just as you would your wallet, your phone, and your keys.