How I got a 750+ credit score as a college student
Credit is just one of those words that means something good for a certain set of people, something bad to others, and absolutely nothing to another set and I understand that because I’ve been each and every one of those people before. Thankfully, as I sit in Washington D.C. on a trip completely funded by credit at 22, credit has begun to mean some good things for me and it’s because of these 7 tips that I’ll go over in this article.
Today, Aug 15, 2021 credit karma tells me that I have a 740 with a peak score of 778 back in March. Of course, it’s just an estimate, but I was able to get to this point in almost 5 years ( I literally started on my 18th Birthday and I’m almost 23) and after a lot of stumbles. Getting the 750 was one of my financial goals for 2021 and it’s a huge accomplishment for any young adult. Having excellent credit makes such a big difference, especially when you’re about to go through a big change in your life like graduating undergrad and becoming a real adult.
I want to clarify that when I started, I was completely on my own. No handouts. No “my parents gave me a small loan of a million dollars”. None of that. I have always been the only person on each line of credit and the only person making the payments. I have no entrepreneurial endeavors to speak of and my investments thus far have not ever affected my ability to pay off a line of credit or serve as enough income to grant me a larger line of credit. Just a few windfalls from taxes and school. I wanted to tell you this because a lot of people have help and a lot of people do not. I was one of the latter and I’m here to tell you that it is possible if you just take it one step at a time and make choices that serve you in the long run.
Start as early as possible
When I say early, I mean early! I skipped school on my 18th birthday in October of 2016 and went to 2 places:
- Edward Jones to talk to a broker named Debbra who taught me a lot about funds and some caveats to investing like income management and inconsistency.
- A local credit union to open an account and start a micro-loan to establish credit. Basically, they loaned me $250 and put it into my account and then drafted about $42 out on a monthly basis for 6 months and the interest came out to like $6 which was well worth it considering that I had no credit and the only thing that they had to ensure that they’d get their $250 back was a check stub from my $7.25/hr job at Arby’s.
Starting as early as possible gives you time to move slowly and carefully, learn, and grow into things. You don’t have to go from 0 to 100 in a couple of years, you have some breathing room.
Align applications with your income
As a college student, I’m cyclically employed where most of the money that I make in a year comes from a summer internship.
Having an internship each summer is one of the big breaks that I’ve gotten. I’ve been blessed to land technical internships that pay well above other internships and that has helped me get a little bit ahead. With these internships, I applied for my cards while I was making money which was when my debt to income ratio was its best. This raised my approval odds and landed me higher lines of credit.
One more thing to think about is applying for good cards that you know you’ll use for a long time and that give you good approval odds. I recommend Bankrate.com and the book “I Will Teach You To Be Rich” by Ramit Sethi for a little more insight on finding the right credit card for you.
***You do not have to have a credit card to raise your score, you just need to have an account that reports to a creditor. If you don’t want a credit card there are many ways to increase your score***
Save 3 steps ahead
Because I relied on my cyclical income, I was a big saver. I learned from Deborah that managing your cash & putting something aside comes first before investing or spending. This helps you stay prepared.
Saving up was essential for me because during my first internship I got a car and was paying off the loan over a period of 18 months. The total cost was $5,962.86 and left me with a monthly payment of $331.27 each month. I made sure that I saved a few months' worth of payments during the summer to get me through rough patches while I searched for a job or waited for a windfall.
For some of you, 3 steps might not be enough to bridge the gaps, but it’s totally up to you. Your credit relies on your ability to be consistent with this tip. If you have poor savings habits and poor money management, then you’ll be an untrustworthy borrower and probably an inconsistent investor as well.
Using the Snowball method during windfall times
Part of raising your credit score comes with time, making payments on time and in full and another part is about your current debt.
The only source of interest accruing debt that I had was student debt and I decided to tackle those. I had 3 loans and decided to choose the unsubsidized student loan with the lowest principle that I could knock it out with my windfall money such as tax & school refunds, and while I was working at these internships. The really cool thing about paying off student loans is that having them doesn’t negatively affect your score prior to your grace period expiring but if you pay them off, your score can get a boost.
I paid off the first of 3 loans with my money from my third internship last year and my score shot up 9 points by doing it. Another good thing is that when I complete my taxes for the year, I got back the interest money (via deduction) that was paid for that loan and used it towards the second loan that I am tackling now.
Even though it means sacrificing some of your windfall money to pay a debt off, it helps raise your score and save you money in the long run with capitalizing interest.
Double-tap and add a little for insurance
I was able to pay off the car in 13 months because I double tapped and added a little for insurance. Most months while I was paying off my car, I’d make 2 partial payments (the double tap) that totaled out to more (the insurance) than the $331.27 that was owed.
When I would receive a windfall, I would send a portion of that money as an extra payment on top of the usual. This reduces the interest by reducing the principal and saves you money.
Keep them open for business
What I didn’t know is that your average credit age affects your score. This means that the average of all active lines of credit is taken. The higher, the better. If you close an old account that is a booster for your average age, it hurts your score terribly, especially when you’re just starting out.
I paid off my car in mid-2019, months after closing a credit card that I was an open credit line for me since 2017. Both of these account closures negatively affected my score because the longest-standing line of credit was only a year old at that point. My average age of credit dropped from almost 3 years to just one and my score plummeted. This is why you should keep your older lines of credit open once you get them to preserve your average age of credit and keep that score up.
Bridge gaps in time, not gaps in total.
When you’re young, use credit to bridge gaps in payment timing and not make payments on things you can’t really afford.
Most adults will use their credit to buy things that they can’t afford outright and that’s cool for them because they are likely postgraduate and/or working full-time to earn a somewhat predictable income with fixed expenses as well. For those in college or high school, it’s likely that you’ll be working hourly jobs with income and spending that are variable so it’s not a good idea to buy something with credit and pay it off monthly.
Instead, use your credit to bridge gaps in time. For instance, if you need gas on Monday but don’t get paid until Friday, use your credit to bridge that gap of a few days and then pay it off when you get paid. You’ll still get the usage, and they’ll still report it as a payment made since money was transferred from you to them after the transaction had cleared even if it’s for a few days.
Conclusion and what you should take from this story.
I want you all to have great credit and make it hard for any financial institution to tell you no. These are just some tips that I’ve found along my credit journey, but these aren’t the only ways to get that score up. Sure, credit is a scammy system — “how do we know that we can trust you with debt if you don’t have enough history of debt?” — but it’s the system we have. Sure, some people get handouts and almost otherworldly windfalls, but that’s okay. You can do it too. You can get that score where you want it to be regardless of your situation. You can do it young too. I want you to leave with this — It just takes one step at a time. That’s it. One step at a time.