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skynesher/E+ via Getty Images
skynesher/E+ via Getty Images
You’ve graduated from college, secured that first full-time job and are ready to move out of your parents’ home. But before you move into that new apartment or buy a new car, you should probably start thinking about your credit.
There are many misconceptions about credit and for recent college graduates, you might not know where to start when it comes to building it. Here are some of the steps you should take after you graduate from college.
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Not empowering their children to understand their financial situation is one of the biggest mistakes parents of college students can make. This might be obvious, but if you plan on buying a home or car or renting an apartment and your credit score is not up to snuff, then you won’t be getting any of those things. It’s important to know your credit score. A credit score is essentially a number assigned to a person that indicates to lenders their capacity to repay a loan. No credit does not mean good credit and not having a credit rating does not put you in a good spot. Your credit score does not automatically start at 850 and get deductions as you make mistakes. They range from 300 to 850, and the higher the score the better. According to credit reporting agency Experian, anything over a 670 is considered a “good” score.
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Federal law requires that each of the three major credit bureaus (Equifax, Experian and TransUnion) provide you with a free credit report each year. This is a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. You should review your whole report because sometimes the report contains discrepancies or you may find a bill that has slipped through the cracks. Paying your bills on time is an easy way to start building solid credit and repaying your debt is how to repair a poor credit score.
You’ve barely stepped foot off that beautiful college campus but you’re already being bombarded with mail and offers from banks and companies to use their credit cards. Make sure to weigh your options and pick the right one. A secured credit card requires a cash deposit that serves as collateral to protect the issuer against a missed payment. If you have no credit history, this could be a good way to start building it. A student credit card gives students and young cardholders the chance to build credit and can come with rewards and benefits, however, it may have lower credit limits and higher interest rates. Store credit cards can help customers save money at their favorite stores but also tend to have higher interest rates.
Living within your means may mean cheap date nights or looking for insanely affordable vacation opportunities, but it also means you won’t overextend yourself repaying credit cards. If you qualify for your own credit card, make sure to pay your balance in full and on time every month. Not doing so will show up on your credit report and negatively affect your credit score. Make sure that you do not overspend on your credit card so you actually have the ability to pay this amount every month. This also applies to any other bills you have.
College is not cheap, which is why it is advisable to determine whether that high-paying job you are after even requires a Bachelor’s degree, but when it does, about 70% of students end up taking out loans to attend college. Paying off your student debt can help you build a credit history because your credit report reflects your debts and payments. Just make sure you pay the loans back on time.
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If you have a parent or any adult that has good credit, you can ask them to add you to one of their credit cards as an authorized user to help you start building a credit history. You become a secondary holder on the primary person’s account. The card will be linked to the primary cardholder's account and they have to pay the bill. But the activity from that card will show up on your credit report. This is a good option for those who don’t yet qualify for their own credit card.
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Unlike an authorized user, you and the person you are co-signing with will be responsible. This really helps you get a line of credit. Whether applying for an apartment, a new car or even a credit card, it allows the borrower to qualify for lines of credit they may get denied for as a single applicant.
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The more times that your credit report is examined, the lower your credit score will end up being. Make sure to be really cautious about what you plan to use credit for. Applying for a car loan or credit from a furniture or appliance store could ding your credit score. In addition to not over-applying for credit, make sure to avoid scams that could affect your credit. It’s important to know the signs of internet and phone money scams that could get you into trouble.
Try to keep your credit card use to no more than 30 percent of your credit card limit. This applies especially to first-time cardholders. Planning no-spend days or weekends and continuing to use mostly cash are good ways to stay within your limits and also start saving money.
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The word “loan” may scare some people. But this is a way to build your credit history fast. A lender puts a balance in a savings account that you can't access upfront. You make payments over a specific period of time. These payments are shared with the credit bureaus, so when you make timely payments, you are establishing a positive credit history. Once you've paid the full amount, you get access to the money and some lenders also return a portion of interest to you. This helps you build credit while also building savings simultaneously. If you’re interested in learning more about your credit score, here are some ways you can improve it.
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