School-days credit haze

Dear Dr. Don,
I am a student and need to get good credit established. I have a cell phone that I have been paying for. Does that help? And after I get a credit card and carry a $0 balance, does that establish good credit?
-- Chelsea Collegiate

Dear Chelsea,
Paying your cell phone bill on time isn't going to do much for your credit history. It's not a loan, but a bill for service. Your credit history describes account relationships where you have been extended credit, the payment history surrounding that account and recent balances.

As a student, you should qualify for a major credit card marketed to students. Bankrate lets you shop student cards using its credit card search feature. It's a good way to see what's out there without filling out multiple applications for credit. A credit application does show up on your credit report and stays there for two years. Multiple requests for credit make you look desperate and lenders hate to extend credit to desperate people.

Paying your credit card off in full is a smart thing to do except when you're trying to establish credit. You're trying to demonstrate you can handle credit. Make your payments on time, but keep a small balance on the credit line, say, $100 to $200 dollars. Card holders that pay off their balance each month are low-profit accounts for the credit card issuer. So keeping a small balance on the card demonstrates that you can handle your credit line and aren't unwilling to pay interest on outstanding balances. That makes you a better prospect the next time you apply for credit.

Carrying a zero balance on a student card will give you a credit history, but it won't help the next lender decide if you can manage a loan where you carry a balance. This Bankrate feature has more on what's good about student credit cards.