What Every New College Grad Needs to Know About Credit

Congrats! You’ve finished up those last few classes and walked across the stage – you’re officially a college grad.

Higher education is already a financial investment of sorts, but now that you’ve graduated, you need to keep the ball rolling by learning how to achieve a good credit score. Here are some tips to set you up for financial success.

Get a Credit Card

Believe it or not, managing your finances without establishing credit can cause financial problems in the future. Without a credit history, mortgage lenders, auto lenders, utility, cell phone providers, insurance companies, and credit card companies have no evidence that you know how to handle debt or ongoing payments.

Now is the time to establish credit and applying for a credit card is a great way to start. However, there are a few restrictions on approval depending on your age:

• Under 18 – An adult can open a line of credit and add you as an authorized user so you can build credit before you’re financially independent. The account owner takes responsibility for paying the balance.
• 18 to 20 – You’ll likely be approved if you have a steady income or another way to pay back your debt, especially if you apply for a student credit card. Otherwise, you may need someone with good credit as a co-signer, according to the rules of the CARD Act of 2009.
• 21 and older – Most college grads fall into this category. If you have little credit history, apply for a secured card where you make a security deposit that acts as your credit limit. If you have a steady income, try for a starter card with no annual fee.

Avoid applying for more than two or three credit cards right off the bat. Start with one until you know you can manage payments, then add another to boost your credit score. Don’t open multiple lines of credit at once, either – your score will plummet.

Do Not Max Out Your Cards

Now that you have a credit card, you want to use it responsibly. Even if your limit is $2,000, don’t use it all. Restrict spending to no more than 30 percent of your credit limit – in this case, $600.¹ This demonstrates that you know how to pace your spending and will pay back your debts on time.

Abide by Due Dates

On-time payments are the most important factor when it comes to building good credit. Some payments are more important than others, like:

• Student loans
• Credit cards
• Auto loans
• Home loans/mortgages
• Personal loans
• Missed monthly bills (rent, phone, internet, utilities, etc.) that get sent to collections

If you do miss a payment, don’t panic. Some credit card companies will forgive a late payment if you contact them immediately. Plus, late payments don’t affect your credit score until you are 30 days past due, so even if you miss the due date by a week or two, make a payment rather than ignoring it.

Check Your Credit Report Annually

Each of the three major credit bureaus – Experian, TransUnion and Equifax – allows you to check your credit report for free annually. You should take advantage of this opportunity, especially since a “soft pull” does not affect your credit score. Regular credit checks can help you catch errors, which are surprisingly common. In 2012, the Federal Trade Commission found that about 20 percent of consumers reported an error that ended up being corrected by one of the bureaus.²

Such mistakes could lower your credit score, driving up your interest rates and making it harder to secure a loan or rent an apartment. To fix the error, contact the credit bureau directly.

Be a Little Selfish

Now that you’re earning money, roommates, friends and family may ask that you put your name on a lease or co-sign a loan. Before you take one for the team and sign on the dotted line, assess your financial situation.

If your roommate were to skip out on paying rent, or if your sibling were to default on their loan, could you realistically afford the payments? If the answer is no, don’t take on the added financial responsibility, or at the very least, proceed with caution. Creditors will come after you for missed payments, and if you don’t have the money, it will drag down your credit score.

Receive Credit Counseling Through American Financial Solutions

Many people only receive this kind of financial advice long after getting their first job or graduating college. As a result, you may have made some financial decisions that resulted in excessive debts you cannot pay off. If you’re struggling to manage credit card debt, call the credit counselors at American Financial Solutions. We can help you get your finances back on track so you can start saving for your future.

¹ https://studentloanhero.com/featured/10-ways-new-grads-ruining-credit/

² https://www.ftc.gov/news-events/press-releases/2013/02/ftc-study-five-percent-consumers-had-errors-their-credit-reports

Published Jul 2, 2018.