How to Build Credit As a Student
As a student, it is important to take active steps to build good credit. Starting early helps to establish your credit history so that by the time you graduate, you will be in an excellent position to apply for loans such as a mortgage or a car loan.
HOW DO I ESTABLISH GOOD CREDIT?
When you apply for credit for an unsecured loan such as a mortgage or a line of credit, the lender will check your payment history with the credit bureau to find out what type of borrower you are. In order to establish good credit, you need to aim for the following:
Build Your Credit History
Lenders like to see an established credit history. They want to know that you have experience managing credit and can use it responsibly. A good credit history that spans several years goes a long way to proving your financial competence.
Keep Your Debt to Credit Ratio Low
Don’t max out your credit card every month. Lenders don’t want to see that you are heavily dependent on credit, as this may affect your ability to borrow money. The recommended credit utilization rate is 30%. In other words, if you have a credit limit of $1000, try not to put more than $300 on that card each month.
Make Your Payments on Time
Establishing a good payment history is very important when you are trying to build up credit, as missed or late payments will negatively affect your credit score. This includes any bills you may be responsible for, including credit card bills, cell phone bills, or utility bills. Don’t leave payments until the due date, as it may take a couple of days for the payment to show, especially when you factor in a weekend.
Aim For a High Credit Score
Equifax classifies a credit score according to the following scale:
- 660-724 = Good
- 725-759 = Very Good
- 760+ = Excellent
If you have a score above 660, you are viewed as a lower-risk borrower and qualify for better loan terms from a traditional lender. Individuals with scores below 560 are generally considered as having poor credit.
As a student, you will have no credit history, but there are several simple steps you can take to start building credit.
3 PRACTICAL STEPS TO BUILD UP YOUR CREDIT
Take small steps to build up your credit. Credit cards, cell phones, and even rent payments can go a long way to establishing a credit history.
STEP 1:
Apply For a Student Credit Card to Build Your Credit
One easy way to start building credit is by applying for a student credit card. While regular users have to pay annual fees on their credit cards, most financial institutions waive these fees for students. Most students who enroll in post-secondary institutions will be eligible to apply for a credit card.
Earn Rewards on Your Card
Some credit cards offer free perks for every dollar that you spend on your credit card. These include cash back, movies, travel miles, and merchandise. Some cards may offer a bonus reward when you sign up for their product.
Watch Out For the Interest Fees!
Most credit card companies like to advertise the perks but keep the interest fees in the fine print. While you should aim to pay off your credit balance monthly, find out how much interest you will have to pay if you are late with a payment. Credit card fees vary depending on the provider and can be pretty high.
Tips For Building Credit With a Credit Card
- Pay your bills on time
- Pay your bill at least a few days before the due date
- Keep your credit utilization rate at no more than 30%
- Even if you get a new credit card, keep the old account, as it looks good on your credit history
STEP 2:
Cell Phone Bill Payments Help to Boost Your Credit
Another great way to build up credit is by paying your cellphone bill. If your parents are currently responsible for your cellphone account, do yourself a favour and take charge of the account. Most major cell phone carriers report your payments to the credit bureaus, so every time you make a payment, the transaction is recorded on your credit history.
Tips For Building Credit Using a Cellphone Plan
- Be sure to sign up for a monthly cell phone plan. Pre-paid plans are not reported to the credit bureaus.
- Check that your carrier reports monthly payments to one of the credit bureaus. Most larger providers in Canada do, but smaller providers may not.
- Pay your cell phone bill on time.
STEP 3:
Use Billi Boost to Pay Your Rent
Outside of tuition fees, rental payments are probably your largest recurring monthly expense, so connect these payments to your credit report to help you boost your credit score. Companies like Billi Boost make this possible.
How Does Billi Boost Work?
Billi Boost has partnered with Equifax so that any rent payments that you make to your landlord will be reflected on your credit report. If you currently use an e-transfer to pay your monthly rent and have a rental agreement with your landlord, you can take advantage of Billi Boost to build your credit.
How Long Does It Take to See Results?
It takes three to six months to see the results, but regularly reported rent payments can boost your credit score by as much as 100 points.
Tips For Boosting Your Credit Score With Rent Payments
- If you are currently paying your rent using a cheque, ask if your landlord will accept an e-transfer so you can connect to Billi Boost.
- Pay your rent on time!
Once you’ve taken these three practical steps to establish a credit history and build up your credit score, you may consider applying for an auto loan for a car.
APPLY FOR AN AUTO LOAN
Getting to and from college can be a chore if you don’t have a car. With the cost of tuition, books, food, and other living expenses, there may not be much left to buy a car, but this is where an auto loan may be helpful. An auto loan will not only get you into a car, but it will also help you to build up your credit for the future.
How Much Can You Afford to Pay For a Car?
Work out a budget and figure out how much you can afford to pay for a car each month. Don’t forget to factor in extra costs such as gas, insurance, and maintenance costs. Once you’ve got your number, use our car loan calculator tool to find out your maximum vehicle price.
Factors to Consider When Buying a Car
If you are a student, there are several factors you should consider when choosing a car:
- Don’t pick the biggest car on the lot! Choose a smaller car so you can save on gas.
- Don’t fall for the coolest, fanciest vehicle on the lot! Insurance fees increase with the value of the vehicle.
- Don’t max out your budget! The higher the price of the vehicle, the more interest you will have to pay.
Choosing a Dealership
When you are looking to buy a used car, find a dealership that has a large inventory of cars to choose from. It is important to compare vehicles for the price, so a quick check on the internet will help you to decide if you are getting a good deal.
At Insta Auto Solutions, we have a full inventory of quality used vehicles for you to choose from.
You can browse our selection by clicking here.
Get an Independent Valuation
Carfax offers a free valuation tool so you can assess the value of the vehicle you are looking to buy. You need to know the make, model, year, and mileage to get a valuation. The price will vary depending on the condition of the vehicle, so one that is in mint condition is likely to cost more.
How To Improve Your Chances of Qualifying For an Auto Loan
If you have already established a credit history and your payment history is good, this will help with qualifying for an auto loan. You can also improve your chances of qualifying for a loan with favourable terms by considering the following:
Work on Your Income
If you have a part-time job with a steady income, your application will be viewed more favourably by lenders.
Make a Downpayment
When you want to buy a car, it is best to plan ahead of time so that you can start saving up early for a downpayment. A down payment will reduce the amount of money you have to borrow from the lender and lower the amount of interest you have to pay.
Consider Getting a Co-Signer
If you don’t have sufficient income or an established credit history to qualify for a loan, it might help to find a co-signer. A co-signer is a person who essentially agrees to take over the loan if you can’t pay it. Most borrowers will ask a parent or a close friend with a good credit history to co-sign their loan.
Apply For Your Auto Loan Today
If you are ready to purchase a car, you can apply for your auto loan today.
What Documentation Do I Need?
In order to submit your auto loan application, you should have the following documents ready:
- Government-issued ID – most lenders require at least two pieces of ID
- Proof of income – use your pay stubs or a tax return
- Proof of employment – provide a letter from your employer or pay stubs
- Proof of residence – a utility bill with your address
Submit Your Application
You can submit your application online to get pre-approval for an auto loan. Click here to start the application process. Approval is quick and often received on the same day.
Build Up Your Credit With an Auto Loan
Once you have your auto loan, maintain your payments regularly to build up your payment history.
- Remember to pay your auto loan bills in full and on time.
- Don’t wait until the due date to pay your bills, as payments take a few days to be processed.
- Avoid interest fees! If you miss a payment, you will start incurring interest fees anywhere from seven to fifty percent, depending on your loan terms.
At Insta Auto Solutions, we offer car loans for everyone. We understand that if you are a student, you may not have an established credit history to qualify for a traditional loan. We are here to help. Contact us today, and we will have you in your new vehicle in no time!
