You may have graduated, but that doesn’t mean you’re done learning. Figuring out how to build and manage your credit is a lesson that will serve you for the rest of your life.
The average college graduate walks away from school with $30,000 of student loan debt. On top of that, the COVID-19 pandemic has created a turbulent economy for job seekers with all experience levels.
Building your credit now can help you make smart financial decisions no matter what your current situation may be. Plus, most negative items on your credit report stick around for seven years. Proactively working on your credit score not only helps you today but will set you up for a strong financial future as well.
Let’s jump in with the six most effective ways to build your credit score after college.
Find your starting point
The first step in building credit after college is to know where you’re starting. You may not have any credit or you may already have some history listed, whether good or bad. Start by accessing your credit report from all three credit bureaus (Experian, Equifax, and TransUnion).
You can get them for free at AnnualCreditReport.com. Usually, you can access each report once every 12 months without having to pay anything. Because of the pandemic, you can now access your report weekly through April 2021.
Check to see that all of your information and entries are correct, including loan and credit card balances. If anything looks incorrect, like a late payment that you actually made on time or an account you never opened, file a dispute directly with the credit bureau.
Services like Credit Karma also allow you to check your credit score, for free, on a weekly or monthly basis. So there’s no reason for you not to stay informed.
Get a credit card
Opening a new line of credit helps in a couple of different ways. First, it starts the clock on the age of your credit accounts. The older accounts your accounts are, the better your credit score will be. You have to start somewhere, so get started as soon as possible.
Just remember not to charge up your cards. Use them responsibly, paying off your balance in full each month to avoid going into unnecessary debt.
Using secured credit cards to build credit
You need to use credit in order to build your credit, but it can be tough to qualify when you’re fresh out of school. One option to consider is a secured credit card, which can put you on the path to qualifying for better cards after a set period of time.
In order to get a secured credit card, you have to make a deposit in the amount of your credit card limit. Then you can make charges and pay off your balance to build a history of on-time payments. After a certain period of time goes by, you’ll graduate to an unsecured card and get your deposit back.
Here is an excellent option for a secured credit card that can help you build your credit score after college.
OpenSky® Secured Visa® Credit Card
There’s no credit check when you apply for an OpenSky® Secured Visa® Credit Card. You can also choose how much to deposit, which can be anywhere between $200 and $3,000. That amount then becomes your credit line.
The OpenSky® Secured Visa® Credit Card reports to all three credit bureaus, so you can enjoy a positive history across accounts. You will have a small annual fee of $35, so make sure you take that into account before deciding to go with this card. Luckily, that’s a small annual fee compared to a lot of secured cards!
Using unsecured credit cards to build credit
You may have enough credit history to qualify for an unsecured credit card. There are options available for a variety of credit histories.
Indigo® Platinum Mastercard
Even if you’ve just graduated from college, you may have already had the chance to cause some damage to your credit score — and that’s okay, it happens. The Indigo® Platinum Mastercard is designed to help rebuild credit if your score isn’t perfect, plus it doesn’t require a security deposit.
All of your on-time monthly payments will be reported to all three credit bureaus, so you can continue to build credit. Plus, a fun aspect of the Indigo® Platinum Mastercard is that you can choose from multiple card designs at no extra cost.
Pay down existing debt
In addition to avoiding new debt, also try to pay down your existing debt as much as possible. To save the most money, focus on your higher-interest balances first. If you need some motivation, pay off your balances from smallest to largest. Also, keep up with all of your minimum payments to avoid late fees and damage to your credit report.
Your credit score will go up as you lower your credit utilization ratio. That’s the amount of debt you carry compared to the amount of available credit. In other words, maxing out your credit card hurts your credit score. By keeping balances low (or completely paid off), you’ll improve your score.
Make your payments on time
No matter how you prioritize paying off your debt, make sure you pay all of your bills on time. Your payment history accounts for 35% of your credit history and a single late payment that’s 30 days overdue can stay on your credit report for seven years. Not only that, you keep accruing additional negative entries the longer your bill goes unpaid.
Think of all the things you want to accomplish in the next few years, like getting a car or buying your first house. You’ll pay a lot more in interest or even risk getting denied if your credit report is full of late payment entries from your early 20s.
Having one credit card is great, but avoid applying for tons of credit cards
Once you’ve graduated from college, you may be tempted to apply for multiple credit cards. After all, you’ll have more accounts at an older age over time and you’ll keep your credit utilization low if you have several unused lines of credit.
Stop before you start applying! Another factor in your credit score is the number of new inquiries you have. For every hard credit pull on your report from lenders or credit card companies, you can lose a few points on your score.
One or two inquiries is no big deal. But if you start applying for every card offer you receive, you can do some serious damage. It’ll also make lenders think twice about offering you a loan if you want to finance a car or refinance your student loans. A hard inquiry will stay on your credit report for two years, but your score will bounce back after just one year.
This strategy for building your credit won’t work for everyone, but it can be helpful in some situations. The idea is to get added as an authorized user to someone else’s credit card, like a parent or close relative.
All of the credit history associated with that account is then usually added to your own credit report. You can also get your own credit card connected to the account. You can see why you need to be close to the primary card user — you’ll be able to make charges and see their balance information on your report.
There’s also the risk of the primary user’s negative entries transferring to your credit report. If they carry a high balance or have late payments, you won’t actually get any benefit from becoming an authorized user. In fact, you’ll actually damage your credit score.
Look for credit reporting services for rent payments
When you’ve just finished college, you’re much more likely to rent than to buy a house right away. Historically, rent payments have not been included on credit reports. But the three major credit bureaus now allow rental payments to show up on your report, as long as it’s submitted.
Start by asking your landlord or property management company if they offer a credit reporting service. If they don’t, you can pay a third-party service to do it. There’s usually an enrollment fee and a monthly charge, but the costs could be worth it to build your credit.
Experian Boost is the perfect example of one of these safe-to-use credit boosters. Experian uses your on-time utility payments to give a boost to your score. Simply sign-up for free, link your accounts, and choose which payment you want Experian to report to the credit bureaus.
How do student loans impact your credit after college?
If you’ve graduated college with student loans, understand how this type of debt impacts your credit score. When you first graduate, check to see when your payments are due, especially if you have multiple loans. Federal and private loans typically differ in whether they offer grace periods.
Student loan payments are reported to credit bureaus, so it’s important to stay on top of those payments. Private lenders can report late payments after just 30 days, while your federal loans won’t show up until they’re 90 days late.
Because of the COVID-19 pandemic and resulting economic impact, the federal government has provided temporary student loan relief through September 30, 2021. It places eligible loans into forbearance with 0% interest.
However, the program only applies to federal student loans. You still have to keep up with your private student loan payments or negotiate with your lender separately if you’re struggling with your payments.
Take charge of your credit early on and you’ll set yourself up for long-term success. Actively building your credit score helps you know how debt can help you and hurt you. As you get older, you’ll be well prepared to navigate more complex types of financing, like a mortgage, car loan, or personal loan.