Flickr user Spencer Bawden
If you’re relying on student loans to fund your college education, it’s important to take steps to improve your credit score. It’s never too early to get started with building credit. Building strong credit takes time. It is not an overnight undertaking. It takes months and years. The sooner you start, the more time you have to build your score.
Importance Of Improving Your Credit Score For Your Student Loans
Your credit score has a major impact on your ability to secure good interest rates and loan terms on private student loans. Private lenders use credit scores as the main criterion for deciding whether or not to approve a loan application. They also use it as a base to calculate personalized interest rates for every applicant. A strong score makes it easier for you to get approved for a private student loan. It may also qualify you for a lower interest rate and better terms and conditions.
Here are a few smart strategies you can use to improve your credit score for student loans.
6 Ways To Start Building Your Credit Score
1. Become A Credit Card Authorized User
Using a credit card (and making all payments on time) is the simplest and fastest way to build credit history. The length of your credit history is another factor that impacts your credit score. The longer you’ve handled credit responsibly, the higher your score is likely to be. Unfortunately, as a student you may find yourself in a catch-22 situation – you need a credit card to build credit history but you can’t get a credit card without credit history. The solution is to become an authorized user on somebody else’s credit card. Ask your parents, siblings or a trusted relative to make you an authorized user on their card.
If you choose this option, the most important thing is to make sure that the primary cardholder has a strong credit score. When you get added to the main card holder’s account as an authorized user, the card and its payment history gets recorded in your credit report. If the cardholder has a well-established account that’s in good standing, your credit score will get an automatic boost right at the outset. On the other hand, if the main cardholder has poor credit history, that’ll damage your credit standing even before you get started.
2. Get A Secured Credit Card As Soon As Possible
Ideally, you want to get your own credit card so you take full responsibility for building your credit history. If you’re too young (you need to be over 18 years to hold a credit card) or you don’t meet the credit score requirements for a traditional credit card, consider getting a secured credit card.
Secured credit cards work quite differently from traditional credit cards. To get a secured credit card, all you need to do is open a savings account in a bank and deposit some money in that account. The bank will use the account as security to issue you a secured credit card. The credit limit on your card will be equal to the balance in your savings account. Every time you use the card, the amount gets deducted from your savings account balance. When you pay your credit card bill, the balance is replenished for the next cycle.
You are, in effect, using your own money when you use a secured credit card. The big difference however is every on-time payment on your credit card bill will add points to your credit score. Paying in cash on the other hand does not help build your score. Also, some issuers will allow you to transition to an unsecured or traditional credit card after you’ve improved your credit.
3. Make All Payments On Time, Every Time
The key to building your credit score with your credit card is to pay off your outstanding in full and on time every month. Payment history has the single biggest impact on your credit score. It accounts for as much as 35% of your total score. Consistent on-time payments on your credit card bill will add points to your credit score slowly and steadily. However, even one late payment can pull your score down a few points.
Create a system to ensure that you don’t forget payment amounts and due dates. Use a physical or digital calendar or any reminder system that works for you to ensure that all payments are made on time.
4. Keep Your Utilization Low
It’s best to keep your credit utilization low when you’re looking to build your credit score. Credit utilization ratio is one of the factors that goes into calculating your credit score. Credit utilization compares the amount of credit you use compared of the total credit that you have. A low credit utilization of 20% to 30% of your total credit limit will add points to your total score. Using up to your credit limit every month will hurt your score.
If you must spend more than 20-30% of your credit limit, one way to do this without hurting your score is by paying off the outstanding in increments before the due date. Clearing the outstanding restores your credit limit and will not hurt your credit score.
5. Request An Increase In Credit Limit
Many credit card issuers will pre-approve you for a credit limit increase automatically if you’ve paid all bills on time every month. This is great as a higher credit limit allows you to spend more with your card without affecting your credit-utilization ratio. You don’t have to wait for your credit card issuer to offer an increase. If your payment history is good, go ahead and request your issuer to increase your credit limit. The faster you get that increased credit limit, the sooner
6. Monitor Your Credit Report
Regularly monitoring your credit report allows you to identify errors or discrepancies that may be negatively impacting your credit score due to no fault of yours. You can get a free copy of your credit report once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion) by submitting an application at Annual Credit Report.com.
Go through the reports thoroughly and review them for accuracy. If you notice any errors, file a dispute with the respective credit bureau. They are obligated to look into all disputes and correct any wrong information. Taking the time to review your credit report every year is worth it to ensure your credit score is based on
Improving your credit score is a gradual process that requires discipline, persistence, and responsible financial management. By understanding the factors that influence your credit score and implementing the strategies listed above, you will be able to improve your credit score. This will open doors to faster loan approvals, better loan terms, and lower interest rates.
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| Lender | Rates (APR) | Eligibility | |
|---|---|---|---|
 |
6.97%-15.03%* Variable
5.99%-14.00%* Fixed
|
Undergraduate and Graduate
|
VISIT CITIZENS |
 |
6.37% - 16.70% Variable
4.50% - 15.49% Fixed
|
Undergraduate and Graduate
|
VISIT SALLIE MAE |
 |
4.98% - 16.70% Variable
4.07% - 15.66% Fixed
|
Undergraduate and Graduate
|
VISIT CREDIBLE |
 |
6.07% - 11.31% Variable
4.39% - 10.39% Fixed
|
Undergraduate and Graduate
|
VISIT LENDKEY |
 |
6.22% - 16.08% Variable
4.09% - 15.66% Fixed
|
Undergraduate and Graduate
|
VISIT ASCENT |
 |
6.54% - 11.08% Variable
3.95% - 8.01% Fixed
|
Undergraduate and Graduate
|
VISIT ISL |
 |
5.62% - 18.26% Variable
4.11% - 15.90% Fixed
|
Undergraduate and Graduate
|
VISIT EARNEST |
|
|
4.98% - 12.79% Variable
8.42% - 13.01% Fixed
|
Undergraduate and Graduate
|
VISIT ELFI |
