Starting college brings new responsibilities, and managing money is one of the most important skills you'll develop during these years. Many students graduate without knowing how credit works, only to face difficulties when applying for credit cards, car loans, or home loans that check credit history.
Building credit doesn't have to be complicated. Your credit score measures how reliably you repay borrowed money. Lenders and sometimes employers use this information to assess your financial responsibility. Starting early means more options after graduation.
Why College Is the Right Time to Start
College years offer a unique window to establish credit in a relatively controlled environment. The stakes are lower than when you're applying for a home loan or financing a car later. Starting early means you'll have several years of credit history by graduation, which makes a big difference.
Many students worry about making mistakes, but the key is starting small and staying consistent. Regular, on-time payments gradually build your credit profile. Many financial institutions like IDFC FIRST Bank offer products especially designed for young adults as they are first-time or new-to-credit users, enabling them to take their first steps towards financial independence.
For instance, cards such as the IDFC FIRST WOW! Credit Card allow students to start building credit without income proof, while offering features like zero annual fees and simple digital management.
Practical Steps to Build Your Credit
The easiest way to begin is by applying for a student credit card which are backed by an FD. These cards are designed for people with limited or no credit history. They usually have lower credit limits, which helps prevent overspending while allowing you to demonstrate responsible usage. The approval requirements are more lenient, making them accessible to college students.
Options like the IDFC FIRST WOW! Credit Card are particularly suited for students, as they are backed by a fixed deposit, do not require income proof, and still report your repayment behaviour to credit bureaus. It helps you begin building a credit history through responsible usage.
When choosing your first credit card, rewards should not be the primary driver for decision making. Focus on cards with no annual fees, reasonable interest rates, and clear terms. Read the terms & conditions thoroughly to understand payment due dates and late payment penalties. Many students use their card for small purchases, like groceries or subscriptions, then pay off the full balance each month.
Another effective strategy is to become an add-on cardholder on a parent's or an elder sibling's credit card. This helps you benefit from their established credit history without full responsibility. It's a low-risk way to start building credit, though the primary cardholder needs to have good payment habits, as their behaviour will affect your credit too.
Managing Your Credit Responsibly
Having a credit card means nothing without wise usage. Never spend more than you can afford so that you can pay back on time. Treat your credit card as if it’s a debit card, only charging what's in your bank account. This prevents debt accumulation and keeps your credit utilisation low.
Payment timing matters a lot. Set up automatic payments for at least the minimum amount to avoid missing deadlines. If you miss a payment, it’ll stay on your credit report for up to seven years, damaging your score and making future borrowing expensive.
Monitor your credit regularly through free services that provide score updates. This helps track progress and quickly catch errors or fraudulent activity. Several banks, including IDFC FIRST Bank, offer customers credit monitoring tools that make this simpler.
Selecting the best credit card requires evaluating your spending patterns honestly. Some cards offer cashback on categories students commonly use, while others focus on lower fees and easier tracking. The Selecting the right credit card depends on your spending patterns and needs.
What to Avoid
· Multiple applications: Applying for multiple credit cards at once triggers hard inquiries that temporarily lower your score. Each application should be thoughtful and strategic.
· Maxing out your credit cards: Maxing out your credit limit signals financial stress to lenders. Keep your credit utilisation below 30% of available credit. For example, with a ₹10,000 limit, don't carry a balance above ₹3,000.
· Closing old credit cards: Closing your oldest credit account shortens your credit history length, which affects your score calculation. Unless there's a compelling reason, keep your first card active and use it occasionally.
Looking Ahead
Building credit as a student lays the foundation for your financial future. By graduation, students who start early will have good credit scores, opening doors to better interest rates, easier flat rentals, and favourable loan terms. Start small, stay consistent, and watch your credit profile grow alongside your college experience.
Disclaimer: This article is published in association with IDFC First and not created by TNM Editorial.