Credit. Credit. Credit?

Shawn Zhu

Shawn Zhu

Fri Jul 08 2022 6 min read

Well, I didn’t either. Not until I watched 7 youtube videos and read 11 articles about credit (all of which are linked below), so that you don’t have to. Here’s my best attempt at condensing what credit is, and how it applies to a college student.

Two key terms: 

Credit Report - a credit report is a detailed report of your credit history, including all of your borrowing, payment behaviors, and credit inquiries. 

Credit Score - credit scores are essentially summaries of your credit report. It’s  a 3-digit number that summarizes how good of a borrower you are. The firm FICO popularized it, and the FICO credit score is the most widely used credit score. A credit score between 580 and 669 is considered fair; 670 to 739 are considered good; and above 740 is considered excellent. 

You need to build a good credit score.

It may be easy to dismiss the importance of good credit when you’re only 18, and taking out a loan for a house or a car is still in the distant, unimaginable future. But there’s no such thing as too early when it comes to building good credit. Here’s how your credit score affects you today: 

  • Whether or not you get selected for an apartment - Part of any standard apartment application is the submission of your credit score. Landlords often only accept tenants with good or at least fair credit scores, and having a good credit score can put you over other applicants.

  • Credit Cards - Your credit score can affect what type of credit cards you can get. A better credit score usually unlocks credit cards with higher credit limits and more rewards. 

  • Cost of a Loan - Not only does your credit score affect whether or not you can get a loan, it also affects the interest on that loan. A higher credit score usually means a lower interest rate, which essentially means a cheaper loan. 

If that wasn't enough to signify the importance of good credit, here’s an especially poignant example of the impact of your credit score from Capital One's website

"Consider recent averages for a 30-year, $200,000, fixed-rate mortgage…

  • A person with a 650 credit score, which FICO classifies as fair, would have a 3.566% APR and a $908 monthly payment.

  • A person with a 670 credit score, which FICO classifies as good, would have a 3.136% APR and an $860 monthly payment.

That $48 difference might not seem like much. But over the course of the loan, it could add up to more than $17,000. And that’s starting from a 20-point difference in credit scores. "

Ok ok. I got it. I need a good credit score. How do I build it?

To understand how to build a credit score, let’s start with a brief understanding of how it is calculated: 

  • Payment History (35%) Your payment history is the largest factor in your credit score. So make consistent, on-time payments, and don’t be late. A payment more than 30 years late can stay on your record for 7 years, and drop your score by up to 90 points.

  • Amount of Debt (30%) This just means how much credit you’re using at any point of time. As a rule of thumb, don’t use credit exceeding 30% of your credit limit. For example, if you have a credit card with a $1000 credit limit (the max amount of credit you can use at once), don’t spend more than $300 without paying it back. 

  • Length of Credit History (15%) Though not a significant factor, your length of credit history is why it’s important to start building credit early. 

  • New Credit (10%) Anytime you apply for a line of credit and a lender does what is called a "hard pull" on your credit score, your score can drop by a few points. As a college student, this will probably rarely affect you. 

  • Credit Mix (10%) Lenders like to see a variety of credit accounts in good standing. As a student, it’s difficult to get a wide variety of credits, so don’t worry about it too much

Now, enough talking. Here’s how to build credit: 

  1. Rent Reporting Contrary to popular belief, opening a credit card is not the only way to build your credit. The three largest credit bureaus – Equifax, TransUnion, and Experian – all accept rent payments if they receive it, which can be included in your credit report for a significant boost to your credit score. Consistent, on-time rent payments not only demonstrate a good payment history, but also extends your length of credit history. Reporting your rent for a year can boost your credit by around 40 points. EDUrain can help you report your rent! Learn more here. 

  2. Becoming an authorized user on your parent’s account - This method, often called piggybacking, remains one of the easiest ways to get a huge boost when starting out. You’ll be able to get your own credit card, but just under your parents account. It also comes with less risks: your parents will be able to monitor spending on the account, and they will be the ones liable for paying any debt back.

  3. Opening a Student Credit Card or a Secured Credit Card - Student Credit Cards are specialized cards tailored to students. They have very low bars for approval, since most students have no credit history. They also bring specialized benefits like streaming subscriptions or Amazon spending. Beware, however, that student cards have very high interest rates, as students are deemed high-risk-borrowers. Secured Credit Cards, on the other hand, function more like debit cards. You deposit a certain amount of money, which will act as part of all of your spending limit. Either way, any payments made by a student card or a secured card will be reported to credit bureaus, and increase your score. 

Annnd we’re done! I hope that gives you a good, broad overview of what credit is, and how it affects you as a college student. But note that I’ve only included the most basic, crucial aspects of credit/credit building. If you want to learn more, I’ve linked all the resources consulted in the writing of this article below. 


Financial Literacy | Harvard

10 Best Online Banks of 2022 - NerdWallet

Ways to build credit as a student -

Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) | Federal Trade Commission

Credit Card Accountability Responsibility and Disclosure Act of 2009 | Wex | US Law | LII / Legal Information Institute

How To Build Credit | Bankrate

Why Is Good Credit So Important? | Bankrate

What Does Your Credit Score Start At? |

How To Build Credit As A College Student | Bankrate

Why Is Credit Important? | Capital One


Credit Cards 101 (Credit Card Basics 1/3)

Checking and Savings 101 - (Bank Accounts  1/2)

How to Get an Apartment (Apartment Hunting 1/3)

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