Many college students have a limited credit history, which commonly leads to a lower credit score. It can be difficult to qualify for new credit, such as an auto loan, without already having a good credit score. So, how do you build a credit score if you can’t get approved for new credit? Turns out, there are quite a few credit building tips for college students and no credit borrowers.
Building Credit Without Any Credit
To raise your credit score, you need to build on your credit reports. There are three major credit reporting agencies: TransUnion, Equifax, and Experian. These credit bureaus keep track of your accounts and payment history, as well as the other aspects of borrowing credit.
Your credit consists of two major things: your credit score, and your credit reports. A credit score is a three-digit number ranging from 300 to 850 that’s calculated using the things listed in your credit reports. If there’s nothing in them, it typically leads to a lower credit score. If your credit score is around 660, you’re usually considered a poor credit borrower. If you have no credit history, you’re considered a no credit or new borrower – many college students fall into this category.
Your credit score can determine a lot of your borrowing power. Lenders reference your credit score to measure your eligibility for new credit because your credit score is based on your history of borrowing. The more accounts with on-time payments you have on your credit reports, the better it reflects on your credit score.
Lenders can tell the difference between a bad credit score and a thin credit file, though.
Still, most traditional lenders are hesitant to approve borrowers with credit scores below around 660. If you're looking for a few ways to build your credit for a car loan, we’ve got some tips on how to start.
Starting Your Credit History With No Credit
Starting your credit history while you’re a college student can be a struggle. If you’re not working, or you haven’t landed a job to begin your career just yet, it can be difficult to get approved for traditional auto loans. With a low credit score or a slim payment history as well as no high paying, steady income, traditional credit cards and car loans may be out of your reach – for now!
Here are some tactics you can use to get ready for the big leagues:
- Credit builder loans – Credit builder loans are intended for new borrowers who want to save some money and build credit. The “loan” is actually just you building a savings account, but each deposit you make into the account is reported as a loan payment on your credit reports. With each on-time payment, you’re building a payment history that accounts for most of your credit score. If you make every payment on time, it raises your credit score, and you can walk away with a nice savings!
- Authorized users – For this tactic, you need the help of someone else with a credit card, usually a parent or family member when you’re a student. As an authorized user, you're essentially piggybacking on someone else’s credit card. You typically get your own card that’s tied to their account. Each on-time payment that the primary user makes gets reflected on your credit reports, even though you didn’t start the account and aren't making the payments.
- Secured credit cards – While a traditional unsecured credit card can be hard to qualify for with poor credit, secured credit cards are typically much easier to get approved for when you’re a college student. To start a secured credit card, you make a cash deposit. This deposit size usually sets the spending limit on the account, and it serves to secure that account. What this means is that if you’re unable to repay the amount you owe on the credit card, your initial deposit covers it. You have a minimum monthly payment that you must meet (if you use it), and those payments build credit history.
- Bad credit auto loans – While working with a traditional car lender could mean having to meet high credit score requirements, there are lenders that assist borrowers with limited credit histories. They’re called subprime lenders, and they look at your income, work history, living stability, and many other factors to determine your eligibility for auto financing, instead of just using your credit score. Subprime loans are reported to the credit bureaus, so your timely payments build a good repayment history.
Not every one of these tactics is best for each college student, but chances are, at least one could work for you. There are many different ways to build credit – remember, everyone with good credit had to start somewhere!
Building Credit With a Car Loan
Car loans are commonly a good way for new borrowers to start their credit history. There are many auto lenders willing to finance brand-new borrowers. Car loans are installment loans, and they’re a great way to build a long-standing payment history. They’re usually large amounts that last for years, and can turn a no credit borrower into a good credit borrower if they’re handled well.
If you want to build credit and get a vehicle, a subprime auto loan could be the ticket. Here at Auto Credit Express, we’ve partnered with dealerships all over the country that are signed up with subprime lenders. To get matched with a dealer in your local area, fill out our free car loan request form. Let us help you get your credit history started!