After earning a degree, the one thing that grads might be lacking is a credit history.
Without this history, they will find it difficult to qualify for a credit card, obtain financing for big ticket items, or obtain any kind of a loan.
This can be solved with time as they demonstrate that they are capable of handling credit and repaying it responsibly.
Follow these five suggestions and start building your credit history the right way.
1. Obtain a Credit Card from a Retail Store
Major credit card companies are less likely to offer a credit card if the individual does not have a credit history, since they can’t tell if the consumer is a low or high risk.
College grads can qualify for and obtain a credit card if they apply for one from a retail store or a gas station, these establishments have less stringent qualifications, and those without a credit history can more easily qualify for credit.
However, it’s worth noting that store credit cards will have a higher-than-average interest rate – typically 20% or more. Use them responsibly, and always pay off the balance each month to avoid those extra charges.
2. Only Use 10% of the Available Credit
Once you obtain a specialty credit card, you should only use 10% of the available credit limit, but if you cannot limit yourself to 10%, you must make sure that you never use more than 30%.
The reason is that your credit scores depend on how much credit you have available as compared to the amount that you are using, and if this ratio is high, it signals that you are carrying too much debt, and it causes your scores to go down.
Using a limited amount of available credit with a store credit card may be more challenging as they tend to come with lower credit limits.
3. Do Not Leave a Balance from Month-to-Month
Unless there is an introductory zero percent interest rate, a new credit card will have an interest rate attached to it, and if a cardholder does not pay their credit card bill in full at the time when they are due, a percentage of interest will be added to the balance, along with a late fee.
Paying bills in full when they are due keeps the balance from increasing, and tells current and future creditors that you are low-risk, capable of paying your bills, and you will see your credit increase.
4. Do Not Close Credit Card Accounts
As college grads are building their credit, they will need to remember not to open and close their credit accounts frivolously.
Part of the consumer’s three major credit scores are determined by when the consumer’s credit accounts were opened, and if an account that has been in good standing for ten years will have a more positive impact on a consumer’s credit score than an account that was only open for a month.
5. Obtain a Loan with a Co-Signer
Obtaining a loan before you have a credit history will definitely be a challenge, but you are more likely to be approved if you have a co-signer. Once you have obtained a loan, it will also play a role in helping to build your credit history because lenders report to the major credit bureaus that borrowers are making their monthly payments on time.
Just take precaution with a co-signer, if for some reason you’re unable to make a payment one month, and it goes to collection, not only will it show negatively on your credit, but it will also show on your co-signer’s credit.
Author Bio
This article was written on behalf of Credit Card Column by Melisa Cammack, when she is not blogging, Melisa loves to play with her three kids, loves to cook, and if she had a little more courage, would open up a restaurant in a heartbeat.
{ 2 comments… read them below or add one }
Good post. Excellent advice, especially about not closing accounts. Thanks Melisa!
I really enjoyed reading your post especially about #2 and #3. Now that you mentioned it, a credit score can actually get bigger if you spend less on your credit card. Hmm, you suggested spending less than 10% or 30% max, now this is something that most people can actually use. I myself am guilty of spending more than 30% of what I have on my credit card, so now you got me thinking of lowering it down to get a better credit score. Plus I agree with what you said on not leaving a balance and pay off the credit card monthly payments in full is a good suggestion. I will keep that in mind. Thanks for the awesome tips, Melisa, I can’t wait to hear more from you!