As a new college graduate, you are preparing for many new adventures. It could be your first apartment, rental space, or even a new home in a new, unfamiliar town. Alternatively, it could be your first post-college job. Either way, it is the beginning of your adventures in building credit. For better or worse, your journey begins now.
First, congratulations are in order. Graduating from college is no small accomplishment. You worked hard and stayed the course. Now you are ready to move on to other challenges, including the building of a solid credit foundation.
Following the guide below for establishing good credit practices and avoiding common mistakes and pitfalls will help you build a better financial future for yourself and, eventually, for your family.
Starting Good Credit Practices
College was a time of learning and personal growth unmatched in prior stages of your life. Now you are embarking on a new journey of growth and learning. This time you are learning about something deeply connected to your financial health and wellbeing – your ability to build credit.
The chances are that this is your first attempt to establish credit. Most credit agencies will view you as an unknown entity and experience some degree of reluctance when it comes to lending you money to buy a new car, buy a home, or even rent a nice apartment. These are a few things you can do to begin a good credit history:
- Apply for a secured credit card. Once you get your card, you should only use it for one or two small purchases and pay the balance in full each month. That will keep your credit utilization score low and help you establish a history of responsible payments.
- Secure a credit building loan. That is when you approach your bank and open a savings account with a few hundred dollars. You then apply for a loan using the money in your savings account to secure the loan. Once you fully repay your loan the bank releases your money back to you, and you have a greatly improved credit score.
- Consider store credit cards. If you have a favorite store, this is a great way to build credit on things you are likely to buy already. You must, however, avoid the temptation to overspend as you are attempting to build credit this way. Many store cards offer more relaxed approval requirements, making it easier to obtain a credit card.
These small steps will help you establish credit. It is up to you to pay your bills on time and keep your credit utilization low as part of your efforts to obtain and keep good credit scores will building a solid credit history.
Avoiding Mistakes and Pitfalls
Mistakes on your path to building credit can cost you big. The price of less than perfect credit is higher interest rates and more difficulty obtaining credit for things like homes, cars, and electronics. Many rental properties even run credit reports before enabling you to rent. Below are some mistakes you want to avoid in your efforts to build better credit practices.
- Pay your bills on time. Not just your credit cards, but other payments too, like rent, utilities, cable, and mobile phone bills. Setting up automatic payments using online bill pay can help you stay on track and pay your bills on time.
- Begin repaying your student loans promptly. Then, stay up-to-date on your payments at all times.
- Skip high-interest credit whenever possible. If it is necessary to establish credit, make a move to lower interest accounts as quickly as possible.
- Check your credit report regularly. Look for errors that may be impacting your credit history negatively.
- Check your credit score regularly. Do this to make sure your score is accurate and that there is no false information on your record.
- Keep your credit utilization below 30 percent. That means if you have a credit limit of $500, you want to spend no more than $150 in a given month and pay the bill in full so that you can begin with a zero balance again the following month.
The combination of good credit-building practices and avoiding common pitfalls and missteps will help you build better credit faster while establishing positive credit management skills that will last a lifetime if you stick to them.